Take Profits or Keep Holding?

[Brooks Gagnon]

Hey everyone. Looking for some opinions. I have 2 duplexes and a 4 family. Owned them for 7-12 years, all cash flowing really well, and have 3-4x equity in each. I'm trying to decide if I should sell some/all/none. My wife wants to sell while the market is still great, but I'm also concerned that maybe inflation continues, and keeping them would be a good protection against that, not to mention the continued cash flow. And of course, I'm considering the tax consequences of selling, as I'm not sure a 1031 would be too useful with the current market conditions. I appreciate any and all thoughts. Thanks.

[Kristi K.]

Personally, I would never sell if you are in an area that appreciates. You can always cash out refi, let the tenants pay off the new loan and buy more properties with your current equity. As long as you use the cash out to buy more assets you are golden. Spend it all on fun in the sun, not such a great idea.... 

[Mason Liu]

Here are some considerations I would make:

1. Do you enjoy being a landlord?

2. What location are these properties in? Do you expect continued rent growth and appreciation due to immigration patterns + city expansion?

3. Can you identify a better investment opportunity or store of money if you were to sell? Would you be able to keep these properties and complete a cash out refi to purchase into any new investment opportunity?

4. Closing costs of selling properties + closing costs of any new acquisition will eat in your bottom line. Refinances will as well, but to a lesser extent.

Personally, I would try and keep the properties as long as 1 and 2 are a yes.

[Alan Asriants]

I agree with kristi, I don't really see a need to sell them. If they are bringing you great cash flow, have appreciated, and are in solid areas, I would keep them.
If you want some extra cash, you can likely pull money out of the home in a HELOC of home equity loan - maybe wait until the rates go down a tad. Its possible a local credit union would give you a good rate.
Seems like youre sitting on some gold there, personally I wouldn't sell.

[Samuel Eddinger]

@Brooks Gagnon - I would never sell a property unless you have a really good thing you want to do with the money.

Like you, I'm an investor in CT. I own quite a few properties in the state. Back in 2021/2022 I did start selling properties but 1031'd into properties that I wanted more. I sold all the properties I did not want to hold long term and purchased the properties that I did. Mostly, I sold SFR and duplexes and bought a 7 unit, 3 unit, 4 unit. In this way, I reconfigured my portfolio to provide additional cash flow so that I could replenish my war chest to buy more if the opportunity arose. I'm currently using that war chest to pay down other debt as I cannot find great opportunities right now.

My father taught me this strategy; hold forever.  On a teacher's salary, my dad has amassed a multi million dollar real estate portfolio by never selling.  He never bought the properties for a cheap price but just has held forever as the market has naturally appreciated. This is the way to generational wealth.

I'd be happy to talk more if you want to DM me.

[Kevin Sobilo]

@Brooks Gagnon, I would only sell if there was something I wanted to do with the money that was better.

Like most investors, I am investing for cash-flow FIRST because its money in my pocket NOW, tax advantaged, and its something I can somewhat control with how I manage the properties.

Mortgage pay-down and market appreciation to build equity happen, but I can't control them, the money doesn't get to my pocket until later which is less valuable and its EXPENSIVE to put in my pocket paying commissions, taxes etc.

So, since I'm focused on cash-flow first, I would only be looking to sell or 1031 exchange if I had better plans for the equity.

You say you don't see the benefit of a 1031 exchange in this market, but if you could buy 3 properties with the equity using mortgages and they each cash-flow 50% as well as the current property you suddenly have 150% the cash-flow you do now, plus you have MORE mortgage pay-down and 3x the properties to appreciate over time AND MORE depreciation to claim on your taxes! So, even if each investment you might purchase now isn't as lucrative as what you have the sheer volume increase in your portfolio might more than make up for that. Also, even though interest rates are up right now, you could certainly refinance any mortgages you take now when rates go down and then cash-flow will jump up even more!

[Jaron Walling]

So many good responses here. 

If you lived in any of those properties during the last 2/5 years the taxes would be excluded ($250K single, $500 jointly). If that's not the case I wouldn't sell unless you have great plans for the money. Low interest fix rate loans are gold. 
My wife and I are selling my old primary. It could cash-flow nicely but due to the above we're taking the profit. We could deploy $$$ into better rental opportunities, fix and flip, or eat some popcorn on the sidelines. I don't see the market cooling very much so I'll probably be on the hunt for something else. 

[Marcus Auerbach]

Quote from @Brooks Gagnon:

Hey everyone. Looking for some opinions. I have 2 duplexes and a 4 family. Owned them for 7-12 years, all cash flowing really well, and have 3-4x equity in each. I'm trying to decide if I should sell some/all/none. My wife wants to sell while the market is still great, but I'm also concerned that maybe inflation continues, and keeping them would be a good protection against that, not to mention the continued cash flow. And of course, I'm considering the tax consequences of selling, as I'm not sure a 1031 would be too useful with the current market conditions. I appreciate any and all thoughts. Thanks.

Your wife does what most of us still do to some extend: making financial decisions based on how they feel (fear) instead of cold hard logic. And cash in the bank always seems like a good idea. But then what? Let it sit in a money market account exposed to inflation? Invest in the stock market? I would agree about 1031 - though time to buy, especially under the time limits of an exchange. It also does not seem to be the best time to borrow more against your assets based on current rates - that will change as soon as our economy has cooled down. We currently focus on asset maintenance: improving existing properties, raising rents where needed, updating interiors and a few new driveways etc.

Sometimes doing nothing is the hardest thing, but it might be the right thing at this point.

[Account Closed]

All depends on your personal finances and your financial goals. Another major consideration is what you will do with that money alternatively, once you've liquidated those houses. 

[Mike Dymski]

compare the expected return of holding the properties vs the expected return with how you would invest the proceeds and you have your answer