cash or not?

Question

I have a potential buyer for 13 class A units. The deal would be all cash and I don't plan on reinvesting. If you had the opportunity to go all cash and give up a 6+ figure income, would you? The units are fairly new with low low vacancy and little management problems. The purchase price is near 2 million. I wasn't planning on selling in this market but the buyer sought me out.Thanks for any feedback.

Daniil Kleyman · Answer

You said you don't plan on reinvesting?  So you're just going to live off the money you get on the sale?  Without knowing the particulars of the deal, I'd say don't sell in this market, keep taking the income from the property, and wait for a better time to sell, unless the guy is offering you an amazing deal.

Steve L. · Answer

- What is market value and market cap rates?
- Tax Consequences?
- Other investment options?

Offer sounds clean, and 2 million for 13 units, sounds like a sell versus a purchase.

Chris L. · Answer

Steve,
Do you have a better place to put your money?
I think that is the defining question for you.
Good investing
Chris

Account Closed · Answer

It would depend upon how fair that price is in your market. I wouldn't let anyone steal my property, but everything is for sale if a good offer comes in.

You might not have planned on reinvesting, but with that cash you might find something valuable that you can steal. Maybe something commercial so you don't have to deal with residential tenants any more.

Matt Mathews · Answer

You may want to consider selling property using a Master Equity Share L/O.  No capital gains, steady Income for term of lease option period.  With the Equity share you will also benefit from any appreciation as a % agreed upon.  When the option is exercised you can then carry a note using a Deferred Sales Trust and continue tax deferral with no seller liability should buyer default.

Chris Wechner · Answer

Hmmmm....Do you have any background on any other types of investments?
          
          I know that you can get some pretty good bonds that yield over 8%, but like anything, you need to know your market before you make a purchase.
          
          Chris Luithly put it best in an earlier post.  Do you have anyplace else to put your money?  If not, it seems like it will take very little time to burn through this newly acquired cash pile (from your sale), and you will be missing your income sooner rather than later.
          
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Steve Collins · Answer

Thanks to all who replied to my "cash or not" question. Here are some more details: My basis is around $700,000 and my tax liability is close to $300,000, not including depreciation recapture (mostly straight line with some component). Most of the units are 5+ years old.  The price would be $2,200,000 gross which is roughly a 5.5% cap (what would you consider to be an average cap rate today?).

I do plan on reivesting somewhere but not a 1031. I need to replace the lost income. I would like to buy notes or issue first trust deeds and get out of most management ( I will still hold 7 other SFR units). I will need a 8% return to replace the lost rental income. Any comments on that?

The bigger question for me is now the time to be in cash? What is cash going to be worth in 2, 5 or 10 years? Inflation or deflation? I am 58 and don't want to be a landlord forever. This opportunity may not present itself again soon. Stay with what I know, a steady rental income, or go to cash? Is it better? That's my worry and a decision I need to make next week.

Thanks again for any input.

Bill Gulley · Answer

Hi, what's your basis?
Consider some seller financing? You'll miss that income. What will you invest in? You want to pay Uncle Sam how much? What's your opportunity cost?

Just some ideas....Bill

cash or not?

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