When Is It Actually a Good Time to Sell Real Estate?

[Joseph Snyder]

I’ve always heard “never sell,” but I’m curious...when do you think it does make sense to sell a property?

We all know the alternatives: keep it and rent it out, or do a cash-out refi to free up capital. Even in big life changes—like adding another family member, losing a loved one, or relocating to a new state, it’s still possible to rent the place out and keep the asset.

That said, I also know some folks just don’t want the extra stress of managing from afar, or they’d rather free up mental bandwidth and focus on other priorities.

For you personally, have you ever sold because of a major life change? Did you regret it or feel it was the right move?

Would love to hear experiences from people who’ve both held and sold in these situations.

Follow me and let’s go down the rabbit hole

[Ken M.]

Quote from @Greg Scott:

I try to stay out of situations where I "need to sell".  I want to be in situations where I choose to sell.  Why would I choose to sell?  The reasons are many, but usually they involve improving my total dollar returns or my return on time.

"Never Sell" is a very simplistic strategy. Because of that, it is also a dumb one.

Why do I call "never sell" a dumb strategy?  Let's just look at one factor, depreciation.  The  moment you have owned a residential property for more than 27.5 years, you have used up all your depreciation expense.  Your cashflow is now 100% exposed to ordinary income tax unless you have other offsets.  You would be much better off swapping that house for another just like it and resetting the depreciation.  

Now let's say you use accelerated depreciation.  (You should.)  If you do the math on that, somewhere around year 10-15 it stops making sense to continue owning that property.  The math will tell you that simply swapping out that property for one just like it would improve your returns.  I recently learned of a pair of brothers that would sell their houses to each other every so often for this very reason.

That is just one of many reasons why "never sell" is a bad strategy.

Don't forget that you "recapture" that depreciation, it's a delay not a gift.

What Is Depreciation Recapture?

https://www.investopedia.com/terms/d/depreciationrecapture.a...

Usually  a 1031 exchange is beneficial. The best, in my opinion, is generational transfer done properly.

3 Ways To Transfer Real Estate To Future Generations

https://www.forbes.com/sites/whittiertrust/2019/04/02/3-ways...

The real issue is hanging onto the property long enough for that to happen. It costs money to hang onto a property.