I keep going back and forth on whether to sell my Phoenix house and buy two cheaper ones

Bought in Maryvale in 2019 for 218k. It's sitting around 340k now based on what the comparable two streets over closed at in February. My tenant is month to month, pays 1,480, and has not given me any trouble in three years. So on paper I have a clean asset I could move.

The idea is to take the equity out through a sale, avoid the cash-out refi rates right now which are sitting around 7.4 percent at the broker I use, and pick up two houses in the 160 to 175k range in the East Valley or possibly Tucson. At those prices I can get rents in the 1,150 to 1,200 range per door. Two houses at 1,175 each is 2,350 a month versus one house at 1,480. The gross looks better on paper and I spread the vacancy risk.

What slows me down is the tax hit. I do not have another property lined up for a 1031 and I am not sure I can move fast enough to make it work. If I just sell and pay capital gains I lose somewhere around 22k to 25k depending on how my accountant reads the depreciation recapture. That is a real number and it changes what I can actually put down on the two replacements.

The other thing is that Maryvale has appreciated faster than I expected it to. I have no particular reason to believe the East Valley houses will do the same. Maybe they do, maybe they sit flat for five years.

Still running the numbers on this and I have not pulled the trigger either way.

2 replies

gabriel_sosa PB3APRO 20

The 1031 hesitation is actually what I'd push on harder. If you sell without one you're not just losing the 22-25k, you're losing the compounding on that money for however many years you hold the replacements. That gap widens fast over a ten year horizon and it changes the whole math on whether two doors at 1,175 actually beat one door at 1,480.

What I'd probably do instead is forget the sale entirely right now and just sit on the month-to-month tenant for another 12 to 18 months. Maryvale has legs that the broader Phoenix market doesn't fully recognize yet, and you already said you have no conviction that the East Valley comps will move the same way. Two houses in the 160-175k range in Tucson or Mesa are fine assets but you're essentially trading appreciation potential for gross rent optics, and gross rent is not the number that matters.

The 7.4 on a cash-out is real but it is also not permanent, and if you don't need the liquidity right now there is no gun to your head. I've watched people restructure good positions because the spread on paper looked cleaner and then spend three years wishing they hadn't touched the original asset.

gabriel_sosa PB3APRO 20

natehalloran Active

Tucson is basically a separate market bet, don't bundle that decision with the Phoenix one.

natehalloran Active

I keep going back and forth on whether to sell my Phoenix house and buy two cheaper ones

2 replies