Overview of Should I Keep or Sell My Rental Property? (Huge Equity Gains) (Rookie Reply)
In this BiggerPockets Real Estate Rookie episode, Ashley and Tony answer three common investor questions: whether a low-priced Midwest rental is actually a good beginner deal, what to do with highly appreciated Southern California rentals sitting on massive equity, and whether a house hacker needs a lease for a roommate. The core theme is that investors should look beyond surface-level cash flow and consider the full picture: real expenses, neighborhood quality, appreciation, financing strategy, and legal protection.
Key Questions Answered
1) Is the cheap Midwest rental actually a good deal?
A beginner investor asked about a $70,000 turnkey property in Indianapolis with a claimed 7% cash-on-cash return and strong cash flow even with high vacancy assumptions.
Main concerns raised:
- Insurance looked suspiciously low at $276/year, which may signal:
- incomplete coverage,
- a liability-only policy,
- or inaccurate seller-provided numbers.
- Class C neighborhood risk:
- More turnover, more wear and tear, and a lower-quality tenant pool can create hidden costs.
- Cash flow may look good on paper, but management headaches can be higher.
- The math changes once all expenses are included:
- After vacancy, repairs, CapEx, and property management, the property may only generate around $50/month in real cash flow.
Takeaway:
Don’t evaluate a deal only on principal, interest, taxes, and insurance. For smaller, lower-quality properties, the true return can shrink fast once full operating expenses are included.
2) What should an investor do with $703K in equity and sub-3% loans?
A Southern California investor asked whether to sell, 1031 exchange, cash-out refinance, or simply hold four rentals that had appreciated significantly.
The hosts broke this into three strategies:
Option A: Sell and 1031 exchange
- Selling one property and using a 1031 exchange could allow the investor to move capital into higher-cash-flow markets like the Midwest.
- The upside is potentially higher monthly cash flow and a better return on deployed equity.
- The downside is giving up very cheap 2%–3% debt, which is hard to replace.
Option B: Tap equity with a line of credit
- A HELOC or similar line of credit could let the investor:
- keep the SoCal assets,
- preserve low-interest debt,
- and use equity to buy more properties.
- This may work especially well if the investor uses the borrowed funds for a BRRRR-style strategy, then pays back the line when the refinance closes.
- Important warning: the new property must cash flow enough to cover the borrowing cost, and the investor needs a clear repayment plan.
Option C: Do nothing and hold
- SoCal appreciation has historically been strong, and the low-rate debt is extremely valuable.
- Holding could still produce meaningful wealth through:
- appreciation,
- mortgage paydown,
- cash flow,
- and tax advantages.
- In this case, the annual wealth creation may already be strong enough that selling could actually reduce long-term upside.
Takeaway:
This decision depends on the investor’s goal:
- Need monthly income now? Consider selling or refinancing.
- Want to keep long-term appreciation and cheap debt? Holding may be best.
- Want portfolio growth without selling? A line of credit may be the middle path.
3) Do house hacking roommates need a lease?
The final question was about whether a house hacker should have a formal rental agreement with a roommate/tenant.
Short answer: yes.
Why it matters:
- Even in a house hack, there is still a landlord-tenant relationship.
- A lease helps:
- define responsibilities,
- reduce conflict,
- and protect both parties legally.
Recommended approach:
- Use a state-specific lease from a trusted source.
- Customize it for house-hacking specifics like:
- kitchen use,
- parking,
- shared spaces,
- rent payment method,
- house rules.
- Then have an attorney review it instead of paying one to draft from scratch.
- The hosts also suggested using AI to help brainstorm missing clauses, then refining the lease with legal review.
Takeaway:
A lease is not optional just because the tenant is a roommate or house-hack partner. It is one of the best ways to avoid disputes.
Main Takeaways for Real Estate Investors
- Cheap doesn’t always mean good. A low purchase price in a rougher neighborhood can hide real risk and low-quality returns.
- Cash flow alone is not enough. Appreciation, debt paydown, and tax benefits can matter more over time.
- ROE is a better decision-making tool than ROI when you’re deciding what to do with existing equity.
- Low-interest debt can be extremely powerful, especially on appreciating assets.
- Every house hack needs a lease. Legal clarity prevents future problems.
Action Items
- Verify insurance quotes directly with the policy, not just the seller’s word.
- Run full operating expenses, not just PITI, before assuming a property cash flows well.
- Compare ROE vs. ROI when deciding whether to keep or sell an appreciated property.
- Consider whether your goal is:
- cash flow,
- appreciation,
- portfolio growth,
- or long-term wealth preservation.
- If house hacking, create a written lease and have it reviewed by an attorney.
Final Thought
The episode emphasizes a simple but important principle: the “best” real estate decision depends on your actual goal. A deal that looks great on paper may be weak in practice, while a property that seems underperforming might be building massive long-term wealth through appreciation and low-cost debt.