Re: Sell or Hold (long-winded response) - Posted by Chris in FL
Posted by Chris in FL on May 19, 2006 at 15:02:18:
Let me first give you some more to think about, then, at the end, tell you how I make a similar decision.
Based on what you have said so far, you are making 10% on your money ($3k/year on $30k investment), but, worse, you are only making 3% on your equity ($3k/year on $100k equity - maybe). Odds are that equity can be put to much better use (if it isn’t already). Decision is not whether to sell or not, but, whether to sell or to take money out of the property and reinvest.
However, you mentioned having a credit line that you use for flips. How big is the line, and what returns are you making using it (maybe you are already making maximum use of the equity; you haven’t given us enough details to make a full conclusion about that).
If you lived in the property two of last five years, and, thus, could sell the portion that was your home tax free, that would be more motivation to sell. I think you said only one year, though? Also, you mentioned not liking the distance. How much will you pay in taxes on the sale/profit? Have you considered a 1031 exchange into a property or two that are closer to you (to defer taxes on the profit)? If you exchanged into just one property you should have enough equity in it get another line of credit, giving you your peace of mind and/or money to use for flips again, and taking away the distance factor, not to mention which, hopefully you buy a bargain, which could more than offset closing costs, etc… If you exchanged into two properties you might not have enough equity in either to borrow more against them.
There are usually so many variables in this type of decision that it is impossible to make it an easy math decision one way or the other, especially if you don’t already know replacement property information (ROI in current property versus replacement, cashflows, anticipated appreciation on both, tax considerations, closing costs, buying more equity or not, etc., etc.).
IMHO, you definitely should look at the math, but this tends to become a personal decision. When I make this kind of decision, and a mathmetician couldn’t possibly factor in everything involved, I stop and ask myself “what is right for me, now?”. Can I get what I want out of this property if I sell? Do I want to continue owning it or not? Make your decision based on your own peace of mind, and know that, regardless what you do, you are going to invest the money/equity well, and you will come out ahead in the end either way.
Almost all wealthy people make decisions quickly, and don’t easily change those decisions later (I couldn’t tell you now what study that is from). So, gather all relevant data, evaluate quickly, make the decision that feels right in your gut, and move forward! Lastly, be okay with your decision, whatever it is, and never stop to second-guess yourself!