I bought a 3 bedroom 1 bath house on a large lot in Tacoma, WA for 65K with closing costs five years ago. I estimate the house is worth 130-150K based on other sales in within two block, most of which are on the 150K end of sale price.
The area is gentrifying. New houses are being built two houses one way, two houses the other way, and blocks around.
It's a paid off property that nets me $700 a month with no vacancies in the past 3 ish years, (since I've rented it out). It was originally bringing in 13% on my money not counting tax benefits or appreciation. Now that they value has gone up, it is more like 6-7% for what is essentially a part time job. Appreciation is about 10K a year right now, if I estimate conservatively. So $8,400 a year from rents after expenses, and 10K a year and counting on appreciation.
Right now I'm holding onto it with the though that, it's a paid off place to live with easy commute to high paying jobs. I lived there for 2 years before so I could do it again, especially since with taxes, insurance and maintenance, it costs me $200 a month to live there, should I move back in. It IS a great fall back position. Not my ideal place to live, but it's paid for and close to everything.
I could probably earn a higher return elsewhere with my money, with less risk and less work. But that the same time, is there anything to be said for having a paid off place to live that I paid that price for years ago as a fall back position? Tenant is on a month-to-month lease so I could move in fairly quickly if I needed to.
Seems like it might be worth keeping for now. I can always decide to sell it later. If I sell it now, it is unlikely that I can buy back in at the price I got it for.
So should one recalculate the cap rate as the property value goes up? If so, is it always worth deciding based on return on investment, whether to sell a property and reinvest elsewhere? In this case, it does provide one hack of an advantage in life, having a paid off place to live, which I could either move back into, or rely on for income.