Sell or Keep Rental Property Calculator

When determining whether you should sell or keep a rental property, here's the basic order of steps we'll go through:

  1. Calculate True Net Equity™ so we know how much money we currently have tied up/invested in the property.
  2. Calculate current returns on the property in dollars: Appreciation, Cash Flow, Debt Paydown, Depreciation, the returns from the Reserves you set aside to have the investment and the returns from any Additional Investment you might be adding to the proceeds of the sale to re-invest in something new.
  3. Calculate the Returns on True Net Equity™ so we know how the current rental property is performing on the current amount we have tied up in the property, Reserves and Additional Investment.
  4. Calculate the returns on the alternative investment we could make with the proceeds of a sale of this rental property.
  5. Compare the returns from the current rental property to the returns on the new investment.

True Net Equity™

First, let's calculate the True Net Equity™.

Traditional Sale 1031 Tax Deferred Sale
Sale Price $261,142 $261,142
- Real Estate Commission - $15,669 - $15,669
- Closing Costs - $2,611 - $2,611
- 1031 Exchange Fee - $0 - $1,000
- Capital Gains Tax - $0 - DEFERRED with 1031
- Depreciation Recapture Tax - $0 - DEFERRED with 1031
- Mortgage Balance - $195,857 - $195,857
True Net Equity™ = $47,006 $46,006

Additional Investment

In some cases, you may be taking additional money you have invested elsewhere (or saved) to add to the proceeds of the sale to invest in something new.

If that's you, we need to take that Additional Investment and what you're earning on that additional investment (Additional Investment Rate of Return) into account so we can make a more fair comparison of before the sale and after the sale/re-investment.

$
Any extra money you plan to invest in addition to the proceeds of the sale to buy the replacement investment.
%
The rate of return you're earning on the Additional Investment money. 8.00 is 8% per year.

Returns on True Net Equity™ + Reserves and Additional Investment

Next, let's calculate the returns being earned on the property in dollars and also those returns divided by True Net Equity™ plus the amount you needed to keep in reserves to prudently own the property as an investment.

We will calculate it with 6 months of reserves earning 1% and with 12 months earning 8%. Let's start with 6 months earning 1%.

Return in Dollars Return on True Net Equity™ + Reserves + Additional Investment
Traditional Sale 1031 Tax Deferred Sale
Appreciation: $7,834 13.13% 13.35%
Cash Flow: $1,547 2.59% 2.64%
Debt Paydown: $2,024 3.39% 3.45%
Depreciation: $1,211 2.03% 2.06%
6 Mos Reserves @ 1%: $127 0.21% 0.22%
Additional Investment: $0 0% 0%
Totals: $12,742 21.35% 21.72%

Next, let's do it with 12 months of reserves earning 8%.

Return in Dollars Return on True Net Equity™ + Reserves + Additional Investment
Traditional Sale 1031 Tax Deferred Sale
Appreciation: $7,834 10.83% 10.98%
Cash Flow: $1,547 2.14% 2.17%
Debt Paydown: $2,024 2.8% 2.84%
Depreciation: $1,211 1.67% 1.7%
12 Mos Reserves @ 8%: $2,027 2.8% 2.84%
Additional Investment: $0 0% 0%
Totals: $14,643 20.24% 20.52%

Replacement Investment

You're not logged in, so you can't select a Dynamic property template as the property/properties you plan to buy as replacemnets.

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In the meantime, we will use a generic replacement property.

We're going to compare Typical 25% Down Payment Gainesville, Florida Rental Property, your current investment property, to you buying Typical 25% Down-Payment Rental Property as a replacement.

Traditional Sale 1031 Exchange
6 Mos of Reserves @ 1%/yr 12 Mos of Reserves @ 8%/yr

IMPORTANT NOTE: You'll need $126,171.18 to buy Typical 25% Down-Payment Rental Property and you're only netting $72,346.84 when you sell Typical 25% Down Payment Gainesville, Florida Rental Property. That's a shortage of $53,824.34 so we're going to assume you have that as Additional Investment.

Keep Sell Change
$ % $ % $ %
Appreciation: $7,834 6.21% $11,250 11.7% $3,416 43.60%
Cash Flow: $1,547 1.23% $1,593 1.66% $46 2.95%
Debt Paydown: $2,024 1.6% $3,051 3.17% $1,027 50.77%
Depreciation: $1,211 0.96% $1,739 1.81% $528 43.60%
12 Mos Reserves @ 8%: $2,027 1.61% $2,294 2.39% $266 13.14%
Additional Investment: $4,306 3.41% $0 0% -$4,306 -1%
Totals: $18,949 15.02% $19,926 20.72% $977 5.16%

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