Hold or Fold? Knowing when to sell

5 Replies

For those who buy and hold - how do you decide when to fold (sell)?

Here's the situation: Bought several OOS properties starting 2.5 years ago. We "chose" this location because my husband was assigned there for work and we realized there were many other commuters like him needing housing and luckily nice housing was dirt cheap there at that time.

Our accidental niche has yielded financial freedom, class A tenants in class B/C areas, and great cash flow of ~ $1k per house after expenses (score!). we consistently have had a waiting list to get into our properties. We also have built an awesome team that makes self managing long distance manageable.

Unfortunately, several others have recently discovered our niche - increasing competition, driving down prices, and shrinking cash flow (we're looking at $400-600 per house after expenses for Oct - our worst month ever). In the meantime, these are 1960s ranch houses that have increased ~ 60% in value since purchase BUT I'm expecting that we'll start having to replace roofs and furnaces in the next couple of years, cutting further into profits.

The question: hold or fold? I'm considering folding b/c my husband has an ATL base starting in Nov so he no longer needs to commute to this location for work; AND it seems that our sweet spot niche is souring with a lot of cheaper competition...
We did make one house a traditional rental with solid margins but the tenant quality isn't as good versus our niche and it has been a headache.

I'm wondering if we should sell the 4 OOS houses in 2018 before capital expenditures start to hit and then roll the profits into a small apartment complex where we live. We have 4 units here and Ive found self managing locally much easier.

On the flip side, we're still doing pretty well and it's likely that these houses will appreciate further as they are still well below the highs seen at the last peak.

Is there a rule of thumb for how long to hold properties? Would you hold or fold?

Everyone is going to have a different opinion as to how to handle a situation. I can't necessarily speak for things in Atlanta. However, in California we have significant swings that you don't necessarily see in other states. As a result, this can dramatically impact your property taxes and eat into your bottom line. Because of this, we do the majority of our trading during the bottom of housing cycles. It also decreases agent fees and typically there are more opportunities. Yes, you may need to sell at a slightly discounted price, but there are a lot of expenses during transactions. If they're based on a sales price, if you can time things well, it can help manage your costs. 

All of this being said, that is our move as well: trade for more units and stay close. 

@Ericka Grant Sounds like you can't go wrong with either decision. Take the money and run is always an option. Being out of area doesn't matter as you stated you have a great team to manage. If the houses keep appreciating I wouldn't worry about expenditures, that is a luxury many would love to have. I am still newer and nervous (also a flipper) so I would take the money and run. Good luck and keep us posted.

Thanks @Kristina Heimstaedt and @Dylan Vargas for your input...I'm going to give this another couple of months and see how things look with our monthly cashflow.  We do have a really solid team so it isn't a terrible burden to hold these a bit longer.  I'll keep you posted.


Also, just FYI I accidentally posted this twice so there is another thread on the same topic - may delete this one to avoid confusion if I can figure out how to do that

@Ericka Grant

Ericka,

I always look at it this way, you have a fairly good idea what those future cap ex items are and can budget for them sensibly. If you exchange them for other properties you might just be assuming someone else's identical thought process. I used to always say I was going to trade up as my unit numbers got where I thought they should be but as a property manager of mine once said " Dean, why sell something you know hoping for a better situation, Just put the cash flow towards another one and you will soon have another one you know just as well"  I haven't sold one yet, I guess if the grand kids want to sell the choice is up to them. Once the ball is rolling,,,,,,,,,,,,,

@Dean H. Wow. That's great advice...there is definitely something to be said for "the devil you know" and also a good point that trading up could just mean trading one set of problems for another.

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