25F in Florida USA. My partner (25M) and I purchased a rental property in May 2020 on seller financing at 5% interest. Our tenant is moving out at the end of May and we were intending to turn this property into an AirBnB but we're very tight on cash. It's appreciated over $100k since we bought the house and we can't find a bank or credit union willing to give us a LOC on it. We're considering selling and looking for another house to buy as an investment property instead.

Some more relevant info:

We own our personal home, which is worth ~$210,000. We owe $140,000. This is also a seller finance situation.

We have about $1,500/mo coming in from various side projects (software support and rent from a housemate). In November last year my partner lost an independent contracting job that was bringing in an additional ~$3,000/mo. He has continued to work with the client on a different job (WFH) but it's much more sporadic, now more like $2,000 every 2 months, or less.

We also have $1,500/mo coming in from our AirBnb. We're partnered with my mom on it, and we split revenue 50/50. No equity here.

The reason we're in such a tight spot financially right now (besides losing the independent contractor income) is because we have to pay more in income taxes than we anticipated. We just got hit with property taxes and homeowner's insurance, and now we have a very large tax bill due next month. (I only just learned you're supposed to make payments every quarter. I know... still learning) This is going to just about wipe out our entire savings -- we'll make it through tax season by the skin of our teeth.

Our intention has been to get an investment line of credit on the rental property when our tenant moves out in May, but it turns out that's not as easy to secure as I thought. We've spoken to several local banks / credit unions and they all say they don't do LOCs on investment properties. We have been planning to partner with my partner's dad on another AirBnB in the next few months, but he has offered to lend us the money / partner with us to set this one up as an AirBnB (which would take $20,000-$25,000 and about 6 weeks). Not sure how the revenue split would look but I know we would be able to come to a reasonable agreement.

The tricky thing if we do this is 1) we will still be very tight on money, even when the house is up and running and 2) we have a balloon payment due in May 2025 to the seller. It's possible the seller would be willing to extend the loan another 5 years (he mentioned this at the purchase) but if not, we would need to refinance or sell in 2 years anyway.

If we sell the house, we'll net $100,000, maybe more. We owe $167,000 and OpenDoor gave us an initial offer of $303,000 (I know these things are subject to change, hence my conservative estimate). Selling will give us some breathing room and a clean slate for choosing a fresh property to invest in with my partner's dad, as well as some of our own capital to invest if we find a project we can do ourselves.

I'm hesitant to sell the house because I know it will continue to appreciate with time, and we probably won't see 5% interest rates again for a good while. We have low monthly payments on it, all things considered.

Thanks for reading, any advice is appreciated. On one hand, selling feels like a short-term gain, long-term loss. But on the other, we will have a lot more mobility to invest elsewhere, and we may have ended up having to sell in 2 years anyway. Hoping that someone with fresh eyes can help me gain perspective on this. Thanks!

Comments

stanimal21 t1_jefzuah wrote on March 31, 2023 at 7:04 PM

You just experienced the major downside of investing in property when you don't have enough liquid assets to cover unexpected expenses: you have to sell the entire property to get your money out. If you have no liquidity, then that's the position you're in. Remember, there are other ways to invest besides property that are very lucrative, a standard brokerage account and an S&P 500 Index fund being one of them. The benefit is you can sell some of your investments instead of the entire thing to get some cash out.

I would sell the property and put the proceeds (minus what you pay in taxes), into a brokerage account. No debt on that investment either. Pretty big plus.

babyspout OP t1_jegdni9 wrote on March 31, 2023 at 8:36 PM

Thanks for the comment. I definitely need to diversify and I plan to do so when I sell the house, but truth be told at the time I just didn't have enough money to meaningfully invest in the S&P. I bought this house when I was 22 with around $1,200 of my own money all-in (closing costs and a roof repair) and the house itself has been smooth sailing ever since -- it's losing our main stream of income earlier than we were anticipating that has put us tight. But you're totally right, we should be much more liquid at this point.

With that said, I'm definitely going to look into Index funds, I appreciate your input.

stanimal21 t1_jegijip wrote on March 31, 2023 at 9:09 PM

>I just didn't have enough money to meaningfully invest in the S&P

The minimum to invest in the Fidelity 500 Index Fund is $0:

https://fundresearch.fidelity.com/mutual-funds/summary/315911750

babyspout OP t1_jeh57sv wrote on March 31, 2023 at 11:56 PM

I used the modifier "meaningful" just to say I didn't have enough to produce any significant amount. I definitely could've put my $1,200 into the S&P but if I did I certainly wouldn't have $100,000 right now.

I'm not disagreeing with your sentiment, just saying that given my financial situation + real estate knowledge at the time it made a lot of sense to buy the house rather than put my money in the stock market.

trueworkingclass t1_jefv1k3 wrote on March 31, 2023 at 6:32 PM

be sure you understand that you have to pay taxes on the proceed

babyspout OP t1_jefv9z5 wrote on March 31, 2023 at 6:34 PM

Yes, I did think of that, thanks. Another reason I'm hesitant to sell but I don't think it's a dealbreaker. Come to think of it I should probably learn more about 1031 exchanges...