How are you buy and hold investors resisting the urge to sell?

47 Replies

We are buy and hold investors primarily seeking cash flow that we live on. We typically buy SFR fixers and do some "forced appreciation". Our portfolio is still in the growth stage and we would like to acquire a few more properties over the next five years. Watching the property prices with their crazy increases makes us want to sell and take some profit but we know from a business standpoint, it would not be beneficial to our long term plan. How are the rest of you resisting urge to sell? Or aren't you?

Putting the money to good use is the issue. There's pretty slim pickings of good deals. In fact, I'd say there are zero "good" deals. Just some that aren't terrible. With looming inflation and very low bank rates paid on savings, we wouldn't want to just hold that much cash without deploying it somehow. There's not a logical reason to sell a property, just seems like it would be cool to net $50k or so for bragging rights...

I am fighting that battle right now. I could easily triple my money on a property I’ve owned 9 years. My 2nd tenant in those 9 years is being transferred out of state. I used to have 10 mortgages for over $1.5mil (while unemployed. :-)). If I sold this one I could pay off my last 4 mortgages and cashflow like crazy. 

I’m also afraid of all the possible new taxes that could be imposed to try to fight this insane deficits/debt we’re running up. I GUESS, if I thought the appreciation train was ending I would/should sell everything. But, if it’s not, how do you give up a couple thousand per property per month. Appreciation has more than tripled rental income for the last couple years, more than doubled it for the last 7. 

Using that money to pay off 4% mortgages seems like a waste of money, but For sellers without mortgages, what are they going to do with any cash? Earn $100 per year for every $100k in the bank?

It’s truly a toss up/battle. I THINK, if those one rents in 2-3 weeks per the Norma for an extra $100 or $200/mo I’ll wait until my October/November renewals and see if anyone wants to leave me. 

@Bill Brandt it’s a great time to take money off the table, and we have done a little of it. As some have mentioned, awfully hard to redeploy.

My personal and still developing theory? Glad you asked...thinking if you sell a smaller asset now and exchange into a larger/better one, even if you have to chip I. Some of the profit to make it cash flow you will be better off in the long run.

I think we will see a flight to quality, sooner rather than later if things tighten up, and as the stratification of income in the millennial generation continues to deepen.

In real terms for moderate cost SFH and duplexes?

Take that 2bed 1bath that’s appreciated 25% and buy the 3 bed 1.5 bath in a better location. Even if you are paying a premium you have more revenue and more pay down and a more sellable asset.

For me, some of it is deciding what to do with the money and taking on another project of what to do with the money.  I know that it's possible the 1031x goes away for the most part and that could also be good incentive, but I also concern myself with over leveraging.  I believe that we are going to see a downturn and that 'could' mean a rent decrease as well.  I'm liking the idea that my properties are renting and if the rents do go down then I will be easily covered and not stressed about how to pay my bills. I guess, ultimately, sometimes it's just easier to hold as well.  Not to mention that at no point have I been unsatisfied with the appreciation I'm seeing if we don't see a downturn anytime soon.

@John Teachout

Honestly, selling just isn’t part of the plan so it’s not on my radar.

The only way I would sell is if there was a huge amount of appreciation and I could sell it and use the funds to buy better properties and upgrade.

I am surprised that 10 lenders hasn’t jumped on here and suggested refinancing in order to pull money out and keep the property as a long-term asset. 

@Joe S. Very funny and true. Although I do know many investors are refinancing to expand with money so cheap and or refinancing to invest in other asset classes that will very likley recover soon. 

Hey @John Teachout  

In terms of resisting the urge to sell. I have perhaps a 5% urge to sell. Personally my properties are very well dialed in at this point. The tenants pay on time, keep the places in great condition and the cash flow is strong. I also have options in the future to further increase cash flow on the properties. It really depends on the investor, property etc.

If I was a little older I may sell and reposition things but for now I am simply looking at the cash flow to fund my retirement one day. Could I sell and invest in other cash flowing investment vehicles? Yes I could but most all other asset classes in my opinion now would be like investing in a minefield. For instance the DOW is near an all time high during a year the world economy was essentially not operating. Is that where one would feel comfortable investing? I would rather buy Doge coin at that point.

I am perfectly OK with a slow down or correction in RE as artificial low inventory comes back on line in the coming years, the money printing will not end soon, Real estate investors will continue to believe we "made" 25% last year, the reality is it's all relative, in essence buying power went down 25% last year, much more with certain items. This trend will very likely continue.

The millennial wave will push prices further in the next decade and beyond. Also rates can not really be raised in this environment. The only reason to sell would be to side step Biden taxation increases on RE. Ironically enough that taxation move will force investors to not sell during his time in office. Ensuring the lowest inventory in history, higher rents, improved tenant profile and very likely new real estate highs.

The real question is how could someone consider selling right now in this environment?

There is nothing wrong in selling. All investments have a lifecycle and exit. If you have reached yours then why not sell? If selling one and paying off the other rentals and getting mega cash flow gives you the freedom to do what you want, then do it. 

We have almost zero leverage in our portfolio. The redeployment of the cash is the biggest issue. I'm at an age where I want to avoid excess risk (I realize that's different for everyone) so putting money into Bitcoin or similar is not happening. We're currently at about 15 properties and will top out at 20. Once we reach that number we may do some buy/sell to upgrade some of the current houses. Our model has always been creating cash flow to retire on. Well, due to some unforeseen events, we've been living on our cash flow for a few years now and have no W2 income. Putting $100k in the bank at .5% seems foolish, especially based on the new inflation data that's come out in the last couple days. So selling one of these houses makes no sense as far as our business or retirement plan, it just is hard to "miss out" on the crazy high real estate prices. It would take everything we get out of the property to replace it and the location and type of property is smack dab on target for our "ideal" rental property profile. So I made the post to see if others are selling properties they wouldn't or perhaps shouldn't, just because the seller's market is so strong.

@John Teachout asking price is a funny thing. We need to figure out the new normal of newly printed money, low rates, labor shortage, etc. What is the math that will make the market correct? The market is "high" compared to where it was 2 years ago, but what if 2 years ago, things were at a discount? We don't know yet. My feeling is the market is pricing in what has happened in the past year monetarily. Not saying it's right or wrong, but it is pretty tough to compare year over year when everything has changed.

We've got a decent size portfolio in Baltimore, and its up. We were super tempted to sell, and got a great term sheet from an institutional buyer. At the end of the day, we decided not to sell because 1) we're not retiring and selling the platform would inhibit our ability to keep doing what we love, which is finding & buying deals, 2) the tax liability would be brutal and I can't get comfortable exchanging into today's higher priced real estate market, 3) what do we do with the cash? I just don't trust where the stock market is right now and being invested in hard assets in an inflationary environment feels better, and 4) today's super low interest rates allow us to refinance if we want access to some of the equity that we've built up. I'd recommend refinancing with a DSCR loan in the 4s with a 30-yr mortgage and 'locking in the cash flow win' essentially forever. We're carrying some corporate debt in the 8% range and plan to use excess proceeds to pay that down to zero, so our balance sheet cost of capital goes down and we're even more profitable. By the way, what a great problem!!!

@John Teachout I am selling one of mine to take advantage of the prices, but only because the cash will shore up my reserves in the bank. Been running thin lately with some a/c units going out and other big rehabs. So selling this one will set us up great for the long term.

I wouldn’t be selling just to take a profit, if I am not redeploying that capital or not putting my business in a better state by selling, then I wouldn’t sell.

Uhhh we do the next best, errr I mean the better thing.

Refinance! It’s perfect time. Rock bottom rates, super high values. We can take out soooo much cash and have payments be LOWER in many cases.

And we keep the cash flowing property.

I honestly don’t understand why people sell.

@Jhanel Wilson

Even if you people don't cash out refi they should be raising rental rates to match the market. Selling in a hot market means buying in a hot market. Adjust rents , cash out refi, rinse repeat.

Just had an offer accepted and doing a walk-through in an hour. Got 100k out and I will be generating another 500/month profit on the low low worst case scenario end. Buy and hold!!

@Kyle Parks

Congrats on your offer being accepted!!

I’m one of those people who don’t raise rents. I can make substantially more money from the cash out refi, then by raising the rents, which has a significant impact on the lives of my tenants, much less of an impact than what it has on me. It’s not worth it to me.

I value other things much more than financial gains.

Every property I own has appreciated in the last year, but resisting selling is beyond easy for several reasons...

  1. Taxes: Between capital gains taxes and recaptured depreciation I would lose a lot of the gain in taxes.


  2. Impossible Replacement: After paying my taxes I would be unable to replace those houses in this insane market at prices that make financial sense.


  3. Loss of Current and Future Income: Every house I have is producing great cash flow and will continue to do so as long as I hold them. Selling them right now is like killing the golden goose.

The very last thing I want right now with interest rates near zero is a giant pile of Federal Reserve notes that would be nearly impossible to put back to work in real estate and I certainly can't earn a return on interest-bearing instruments, i.e. CD, bonds, savings accounts, etc. and the stock market seems way overvalued and trading sideways at the moment so I don't see much opportunity there for the medium term.

My net worth goes up every month with appreciation and I have cash flow coming in. My biggest regret is that my rental portfolio wasn't 1000X larger during this massive run-up in prices. Finding properties that make financial sense might be hard for a while. I keep asking myself even if I wanted to sell, what the heck would I do with a giant pile of money that begins losing value to inflation before I walk out of the closing. Nope, I am totally staying put.

    I am in the same boat as @Jhanel Wilson and @Michael Temple , I gain more by just raising the rents as I should have been doing from the beginning but now the gains from those rent increase shows better cash flow. 

    I have thought about selling a property or two over the past couple of months but the same question comes up as to what am i going to replace them with, prices in this market are high and capital gains and taxes would eat away to much. I will keeping looking for other deals and keep what I have for now

    Originally posted by @Michael Temple :

    Every property I own has appreciated in the last year, but resisting selling is beyond easy for several reasons...

    1. Taxes: Between capital gains taxes and recaptured depreciation I would lose a lot of the gain in taxes.


    2. Impossible Replacement: After paying my taxes I would be unable to replace those houses in this insane market at prices that make financial sense.


    3. Loss of Current and Future Income: Every house I have is producing great cash flow and will continue to do so as long as I hold them. Selling them right now is like killing the golden goose.

    The very last thing I want right now with interest rates near zero is a giant pile of Federal Reserve notes that would be nearly impossible to put back to work in real estate and I certainly can't earn a return on interest-bearing instruments, i.e. CD, bonds, savings accounts, etc. and the stock market seems way overvalued and trading sideways at the moment so I don't see much opportunity there for the medium term.

    My net worth goes up every month with appreciation and I have cash flow coming in. My biggest regret is that my rental portfolio wasn't 1000X larger during this massive run-up in prices. Finding properties that make financial sense might be hard for a while. I keep asking myself even if I wanted to sell, what the heck would I do with a giant pile of money that begins losing value to inflation before I walk out of the closing. Nope, I am totally staying put.

      Your the first to mention recapture that is the real issue at the end of the day selling now for lower cap gain tax can see that but the recapture for those with long term holdings can be the real killer .. which forces you to stay on the rental real estate Hamster wheel.

      But maybe some folks could 1031 into a building and the ON Going business if they want to create cash flow and try something a little different.

       

      @John Teachout when I want some of that equity, I cash out refi instead of selling. I may only get 70% of the proceeds vs selling, but I still keep the asset and all the benefits it provides. By the way, this is Ken McElroy approach.

      @Jay Hinrichs I thought about mentioning 1031, but I figured that goes into the same point about replacing the property I sell. 1031 has some very tricky timing issues and trying to make it work in this environment would be a dicey proposition at best. I see your point about recapture of depreciation keeping you in rental properties, but in my case, I love it and have no intention of vacating the business so I don't mind being "stuck in the hamster wheel" as you say. I hope to build up a nice portfolio and leave it to my kids someday.

      If I ever run my depreciation out someday I can always consider 1031 at that point to re-set the depreciation schedule.