Here’s Why I’ll Never Sell My Multifamily Investment Properties

by | BiggerPockets.com

I never plan to sell a single multifamily property, and here’s why:

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I’m Going Long

I’m in it for the long haul. I’m not just thinking about how to make money next month, hit a goal this year, or get rich in five. My eye is on the long game. I’m looking 10, 20, 50 years down the line and beyond.

It’s a Lot of Work

Sourcing, screening, negotiating, and closing on multifamily apartment buildings takes a lot of work and time. Often, that is just the beginning. Once purchased, you must deal with tenants. You’ll have to market the units, and you’ll probably have to renovate and improve the property at some point. Compared to the long-term rewards, to me, it doesn’t make much sense to sell after putting in all of that work. I want the best returns on my time and money. I want to know that I am really doing something worthwhile — something that will last. 

Related: Attention Multifamily Investors: Are You STILL Paying Taxes?

Taxes

The quick cash and returns some people rave about from flipping and wholesaling houses can sound really attractive. Until you do the real math and pay your tax bill. They never talk about taxes on reality TV. They talk about gross profit, which is in a completely different ballpark from net profit. You pay a lot less in taxes on long-term gains and passive income dividends than on active income or short-term windfalls. I’m not trying to give up a large fraction of the gains I work so hard to earn in real estate investing. That’s just not my model.

Speculation

I believe it is just too much of a gamble to buy a property in the hopes of selling it. Especially after putting countless hours, energy, and precious capital into renovations and improvements. Some people say that you make your money when you buy, but really, you make your money when the property puts money in your pocket. I know I can do that with cash flow from tenants right away. There is never a guarantee that you can flip for a certain figure (or even sell at all). I see many investors setting themselves up for difficulties right now, overpaying for properties with hopes of flipping. None of the thousands of investors who got caught in the last crash expected they would get stuck with those properties, but they did. I buy for cash flow.

Related: Why the Wealthy Put Their Money Into Multifamily & Commercial Real Estate

Net Worth

Even the best properties may fluctuate in value at different times. Yet, in the long run, these assets keep going up in value. After all, what are you going to do with fast money anyway? Stick it in the bank at negative interest rates? Or stuff it in your mattress to devalue? I’m looking at long-term wealth building, which will in turn increase my real net worth. By holding multifamily properties long term, extra losses on transaction fees, taxes, commissions, can be avoided.

Summary

I’m not selling anytime soon. I’m going long, and never plan to sell my multifamily property investments. That may not be for everyone, but before you are quick to judge, do the math on the above factors and give it some thought.

We’re republishing this article to help out our newer readers.

What about you? Have you sold and regretted it?

Or am I missing something about flipping that you think I should know?

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.

31 Comments

  1. JL Hut

    You sound like a real person that has been around the block a few times. But if if your from the USA and keep doing that long term thinking, you will disrupt our way of life. Kick back and relax, go to McDonalds and have a quick burger on me. Live for today, don’t over think it. There now don’t you feel better? Thank goodness, now our economy is back on track. I have always been a long term thinker, but I don’t want you crowding into my space. 🙂

  2. Joseph Bramante

    Sterling, in general, great article. I know you are painting with a very broad brush and you touched on some very good topics for people who may not know much about MF. HOWEVER, you should at least mention some of the scenarios under which you might sell. We generally share you philosophy of never selling since we try to buy very well. But some properties do have a shelf life. You reach the point where you have owned a property for 5-10 years and your note is due to refinance. The property is already 40 years old and your options are to sell or to refi cash out with a small budget for major maintenance items (like new roofs). But a new loan would be another 10 years, so how easy will it be to sell a 50 year old property in 10 years when everything else is newer? It does make sense to turn through your properties as you grow to constantly be buying newer ones with less mileage. Another scenario might be that you see the market is changing for the worse. You need to get out and save your value before it is too late. Overall, good job. Thanks for sharing and taking the time to write it.

  3. Giovanni Isaksen

    Exactly @Sterling… and it’s not just me, Trammell Crow said “You can get rich selling real estate, but you can only get wealthy by owning it.

    However as @Joseph alludes, if you’re syndicating or private equity you are running in front of a locomotive because now matter how long you tell your LPs the hold will be; about year 4 or 5 they’re going to get itchy. Somebody in the locker room at the club will be bragging about their (gross as Sterling said) returns and it starts ticking over in your LPs mind; they don’t have anything to brag back about and that’s when you’ll start to hear from them. On the other hand once you do clear your threshold return you pretty much have to sell since the risk of hanging on is concave to keeping the AUM in house.

    The trick of course according to Barry Sternlicht is get on the freight train instead of running in front of it; get as much equity in your deals as you can swing and build it until you can fire all the LPs and just manage your own capital and portfolio.

    BTW if you’re in the real estate investment business you can get a very good education studying and following the two guys I mentioned.

    Good hunting.

  4. Cory Binsfield

    The other day a broker called me and asked if I wanted to sell my multi. I thought it over for 5 seconds and told him no. Sure, it would make a nice profit, but I would have to deal with a buyer, the headache of a 1031 exchange and then have to find a new deal that was better than my current one within the short window of a 1031 time frame.

    That’s a tough nut to crack in this market.

    As Warren Buffett likes to say, “If you don’t find a way to make money while you sleep, you will work till you die.”

    This property helps me sleep like a baby.

  5. Sterling:
    I’m like minded. I would like to add:

    With the current tax law if your heirs inherit the properties, not only do the inherit market basis (1031 deferred taxes never get paid), but they also receive a new 27.5 year depreciation schedule with which to further shelter future cash flow!! … unbeatable!!

  6. Bas Land

    Same thing here. Although I don’t own investment real estate yet (that’s a work in progress!), I do own my condo just outside the city center and plan to never sell it. When I’m ready to move out I’ll just rent it out. Selling is expensive, and by living in the place for a few years I’ve built equity “for free”.

  7. Mark Hentemann

    I like the buy & hold strategy with multifamily as well.
    Leverage is a powerful tool in maximizing returns, so I’m a believer in refinancing to releverage as the value of the property increases.
    I’ve gotten into a groove of getting 5 year-fixed loans (they have some of the best interest rates), and refinancing to re-leverage every 5 years. I pull my equity out, releveraging the asset, then use the cash to buy another building. Theres a pretty amazing thing that happens once you’ve built a small portfolio. When I hit 5 buildings I noticed I was refinancing 1 a year, and buying one new building with the cash. I’m now at 15 multifamily properties, averaging 3 refi’s a year, pulling cash out and buying, on average, 3 new properties. Next year, same thing. I never anticipated this when I started out, but this process snowballs! And it accelerates! . In a couple years, I plan to refinance 5 properties a year because I’ll have accumulated 25 buildings, and will need to buy 5 more with the cash.
    One asterisk to the buy & hold forever approach: I started with single family, then moved to a duplex, then a fourplex, etc. The larger the building, the more I liked it– the economies of scale, the efficiency of management, etc. For years I held onto my smaller properties, but now I’ve sold the duplex and 4 units to get into larger units. I’m currently in escrow, about to close the sale on my last 4 unit building, and just entered contract on the upleg property, which is a 36-unit in a more up-and-coming neighborhood. I’m happy to sell 4 units to make the leap to 36. I plan to hold that one forever.
    Thanks again for the good post!

  8. Matt Honeyford

    Nice article. There is only one thing that I don’t agree with. You mentioned that you didn’t want to buy a property with the hopes of selling it. If you buy it right, don’t over pay and know exactly what your list strategy is, you’d be able to make more money to invest in multi family properties.

  9. Cody L.

    I sell buildings all the time. I do so to pull out the cash to buy more. If I never sold my first building, I wouldn’t have been able to finance my next larger purchase. You can’t grow to 100’s or 1000’s of buildings (IMO at least) if you’re not ever selling. Later down the road you might not need to as you can refi and get most cash out. But early on you need those ‘profit pops’ to fund growth.

  10. Costin I.

    “Fearful when others are greedy and greedy when others are fearful” – Warren Buffet
    “The Best time to buy real estate is NOW.. The Best Time to sell real estate is NEVER.”
    “Never ever sell real estate. Ever. [but never say never, so…] Unless it’s to buy better real estate”

  11. Greg Carroll

    As someone brand new to REI, I want to take advantage of several income streams.
    Buying and holding is a great long-term wealth (and retirement) building strategy, but flipping and wholesaling can take care of some of the immediate needs (becoming debt free quicker) and reinvesting.
    As compared to the banks and the mattress, with ready cash on hand you can become the lender to other REIs helping them while getting a good return on your dollar.
    And as great as REI can be for those willing to work at it, a wise investor diversifies, so when I’m able, there will be stock, bonds, precious metals, and maybe that odd Van Gogh.

  12. Jared Stasch

    How can anyone say what is going to happen two years down the road much less 50 years? What about the job market and economy? What if they overbuild in your area and you have a huge vacancy factor? What about all that cash flow you took in and then had to spend 5 years later on a new roof, or paint job, etc.? What about when the rents stop going up and you can’t raise them anymore? How does that affect your return on investment?

    Always best to look at your Annual Rate of Return and see what you come up with. I met a guy who would never sell. Owned the property for 14 years. I showed him what he could sell the property at today and it was a million dollar “profit” from what he paid originally. However, once we sat down and calculated the annual rate of return he was only at 7% a year and it gets worse every year he held the property. Cash flow doesn’t stay in the bank account. It goes back into the property especially the longer you hold them.

  13. Doug Keach

    I know operating expenses can vary from one property to another, but what do you typically see for your operating expenses in C-class multifamily properties as a percentage of gross rents (not including P&I in those operating expenses)? 45%, 50% or even 55%?

    • Doug Keach

      I know operating expenses can vary from one property to another, but what do you typically see for your operating expenses in C-class multifamily properties as a percentage of gross rents (not including P&I in those operating expenses)? 45%, 50% or even 55%?

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