Should I Sell My 4% Interest Rate Rental Property? ($300K in Equity!)

BiggerPockets Real Estate Podcast

BiggerPockets

Education, Investing, Business

4.8 • 16.6K Ratings

🗓️ 11 December 2024

⏱️ 37 minutes

🔗️ Recording | iTunes | RSS

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Summary

Should you keep, refinance, or sell your rental property? If you’re sitting on a low mortgage rate and plenty of equity, you’ve probably asked yourself this once or twice within the past year. Most people who bought a rental property before 2020 have seen unprecedented appreciation and rock-bottom interest rates and are likely sitting on a war chest-sized home equity position. But that equity could be better spent investing in new properties than keeping your old ones. This is Dave’s exact predicament. He’s got a property he bought back in 2016 that has over $300,000 in home equity. It’s cash flowing a solid $500 per month with a mortgage rate of just under four percent, but only producing a measly two percent cash-on-cash return. He’s getting four times the return on his recent investment property purchases, so should he sell? Not so fast; we’re doing the math to figure out whether he should keep, refinance, sell, or change strategies on this property. Got the same good problem? Stick around as we even drop a fifth option most investors overlook entirely, which gives you the best of both worlds. In This Episode We Cover: Whether to keep, refinance, or sell a low-performing rental property The obvious problem with cash-out refinancing in 2024/2025 Why we DON’T love doing 1031 exchanges (and a tax-advantaged way around them) Converting your long-term rental into a medium or short-term rental (MORE cash flow!) How to access home equity WITHOUT refinancing your property or getting a new loan And So Much More! Links from the Show Join BiggerPockets for FREE Let Us Know What You Thought of the Show! Ask Your Question on the BiggerPockets Forums Grab Dave’s Latest Book, “Start with Strategy” Get a Quote on Your Next Short-Term Rental Loan with Host Financial Find Investor-Friendly Lenders Keep or Sell? What to Do When Your Rental Doesn’t Cash Flow Connect with Henry Connect with Dave (00:00) Intro (01:20) Property Details (04:51) 1. Keep the Property (07:12) 2. Refinance the Property (10:29) 3. Sell the Property (17:12) 4. Convert Into a Mid-Term Rental? (21:10) The Best Option? (22:24) 5. Use Home Equity Instead Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-1055 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email advertise@biggerpockets.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	How do you know when to sell a successful property or should you hold on to successful properties or refinance them?
0:12.4	This is one of the most common questions that I get these days.
0:16.3	And as I was thinking about how to talk about this on the podcast, it actually occurred to me that I have a property that I am about to go through this process of thinking through.
0:27.0	And I've invited on Henry Washington to join me to actually just talk through this property and this problem, this challenge, this question that I'm facing in real time.
0:36.9	And although we were going to talk about
0:38.5	one of my portfolio properties, I think this conversation is going to be super helpful to everyone
0:43.5	because it helps provide a framework for thinking through the best way to use your money and
0:48.5	to optimize your portfolio over the long run. So, Henry, welcome. And thanks for helping me out on this portfolio
0:56.0	management question today. First and foremost, this is really cool because a lot of investors
1:01.4	either have faced this problem or will face this problem in the future. And I believe
1:06.3	people need to be analyzing their portfolios at least once a quarter. But selfishly,
1:10.5	this is fun for me
1:11.7	because I love spending other people's money. So let's talk about how I would spend yours.
1:17.0	I'm nervous now, but let's do it. All right. So first things first, Dave, tell us about this property.
1:24.4	Well, it's my former primary residence. As you might know, in 2019, about five
1:30.0	years ago, my wife got transferred to Amsterdam for work. So we moved from Denver, decided to rent
1:34.9	out our primary residence. We bought it back in 2016 for $460,000. It's in a great neighborhood.
1:42.7	Been very fortunate. It has appreciated, I think it's worth sort of conservatively like $750,000. It's in a great neighborhood. I've been very fortunate. It has appreciated. I think it's
1:45.6	worth sort of conservatively like $750.50. I sold the property just down the street for $800,
1:51.3	but that was in 2022. So it was a little bit hotter then. And right now, I'm renting it out for
1:57.9	$34.50. I'm getting probably on average $500 a month in cash flow after really, truly all the expenses, because I have a really good interest rate on it, refinanced in 2020 to $3875. And so it's a solid rental property, getting $6,000 a year in cash flow. But as I just mentioned, I'm sitting on a lot of
2:19.7	equity, which is a good problem to have, but it sort of brings up the question if I'm using my
	...

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