Is this the time to be selling your rentals

Buying & Selling Real Estate
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Is this the time to be selling your rentals

Devang Patel
South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes

Prices are at an all time high and demand for rental properties is skyrocketing. For those of us who purchased a few properties after the crash, the appreciation is staggering. Is it time to sell and leave the table and cash out while you can?  If you can make now what it would take you to make 10 years of cashflow, does it make sense to sell?  I feel like with impending legislation, especially in NJ, it is becoming more and more difficult to be a private landlord    

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Phil Parris
Member since 2020 · 5 posts · 18 votes
5y

Devang,  We had a free & clear property that was vacant we were considering for rent; In my area we estimated it would rent for roughly $1k per month. Which we believe is good cash flow.  We also spoke with our trusted realtor; we had our realtor assess the home and of course our realtor suggested making some updates and listing it. We went with our realtors suggestion.  Id say we spent about 8k in updates and took about a month to get it looking how we wanted. OMG we received multiple offers some up to 20k over our listing amount. We had soooo many offers we jokingly accused our realtor of starting a bidding war.  Long story short, after doing the math it would take roughly 12.5 years to get our offer amount by renting; yeah we understand homes usually appreciate over time; however in these current times where demand is super high; and all the red tape surrounding landlords; Id say cut sling load and sell. Go with the flow of the sellers market and Cash Out!   

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  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    The first thing is you really don want to be paying capital gains on those properties, so youd want to 1031 them all. Second, I'd you're a long term investor you don't sell just because you have had appreciation. But the other factor is what you mention about investing in a "tenant friendly" state. And then there's the question of whether you even want to live in a state like that.

    2Reply
  • Devang Patel
    OP
    South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
    5y

    But isn't there an amount of appreciation that even for a long term investor it would make sense to sell? Also including the tenant friendly restrictions limiting any ability to evict still in nj

    1Reply
  • Tim Czarkowski
    Involved In Real Estate · Jacksonville, FL · Member since 2012 · 217 posts · 42 votes
    5y

    I've briefly considered it but then I'd just be looking for somewhere else to park that money and I don't see that being easy to accomplish right now. I'm in Florida however where the landlord tenant laws are some of the best in the country. If I was in New Jersey or California I personally would seriously consider exchanging into somewhere with more favorable laws.

    6Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    Yes. You can/should sell if you don’t want the steady rental income and you don’t plan on investing in real estate for the rest of your life. Interest rates and prices will almost certainly be higher for the rest of your life. So you will most likely never buy any more investment properties if you sell today. 

    Your statement about staggering appreciation since the crash and insane rental demand was  also true 12 months ago. Why didn’t you sell then? Are you sad you didn’t? 

    6Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    I would consider this option only if I were truly at the end of my investing life and seeking to create an annuity-like income stream through a simpler and more consistent vehicle, saying putting it all in IVV and withdrawing a flat percentage every month.  If you are still looking to invest in the future, selling now only makes sense if you have identified a better investment vehicle that's available to you.    

    5Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    5y

    As investors, we to be more than a one trick pony so we can pivot as market conditions change.  If appreciation plays don't pencil out, we need to be able to pivot to cash flow plays.  If the market is down, we need to be able to pivot to appreciation plays.  And pivot geographic locations...or asset classes.  Otherwise, the appreciation is worthless and there is no true exit strategy.

    I have been pivoting from value plays to cash flow plays. And always adding value. Adding $1 of NOI to a 5 cap adds $20 in value. Some people think prices are too high...others take advantage of it!

    3Reply
  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Devang Patel  I don't see the demand going away any time soon. Why did you acquire your properties to begin with?

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    0Reply
  • Phil Parris
    Member since 2020 · 5 posts · 18 votes
    5y

    Devang,  We had a free & clear property that was vacant we were considering for rent; In my area we estimated it would rent for roughly $1k per month. Which we believe is good cash flow.  We also spoke with our trusted realtor; we had our realtor assess the home and of course our realtor suggested making some updates and listing it. We went with our realtors suggestion.  Id say we spent about 8k in updates and took about a month to get it looking how we wanted. OMG we received multiple offers some up to 20k over our listing amount. We had soooo many offers we jokingly accused our realtor of starting a bidding war.  Long story short, after doing the math it would take roughly 12.5 years to get our offer amount by renting; yeah we understand homes usually appreciate over time; however in these current times where demand is super high; and all the red tape surrounding landlords; Id say cut sling load and sell. Go with the flow of the sellers market and Cash Out!   

    8Reply
  • Devang Patel
    OP
    South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
    5y

    phil-- while most people will disagree i tend to agree wit you. 

    0Reply
  • Bhaskar Pusuluri
    Rental Property Investor · Cary, NC · Member since 2016 · 20 posts · 7 votes
    5y

    @Devang Patel

    I am also considering about selling one multifamily property to capitalize on the market situation. I mentally prepared to pay longterm capital gains tax - as it would hard to find a good deal soon.my hope is yo buy a bigger property after the market corrects .

    I have more properties, not thinking about to sell as they are providing great cash flow .

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    5y

    It depends on your personal situation. If no one ever sold there would be no market would there? 

    2Reply
  • Chai Jonn
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    5y

    @Devang Patel

    I an in the same boat! I have rental SFH Phoenix. If I sell now, that's 14 years of cash flow.

    2Reply
  • Devang Patel
    OP
    South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
    5y

    @Chai Jonn  what are you going to do?  

    0Reply
  • Kumar Gaurav
    Member since 2019 · 258 posts · 35 votes
    5y
    Originally posted by @Chai Jonn:

    @Devang Patel

    I an in the same boat! I have rental SFH Phoenix. If I sell now, that's 14 years of cash flow.

    Years of cash flow sounds like a pretty useful metric to determine whether to sell or continue renting. But did you also take into account the transactional costs associated with selling? capital gains tax, seller commissions , other fees, etc? I am also in a similar boat but finding it hard to find another deal that at leats equals current cash flow, also any thoughts on where to park the sales proceeds until finding another deal?

    0Reply
  • Chai Jonn
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    5y

    @Devang Patel

    Either sell it under 1031 exchange. Or Cash out refinance or HELOC. But I will be doing something with that equity.

    0Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes
    5y

    Another option you could explore is HELOC since you have equity. Buy properties in more landlord friendly states. You would leverage more and some people don't like doing this. You can capture the equity without selling and paying taxes.

    0Reply
  • Devang Patel
    OP
    South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
    5y

    i was thinking of cashing out, but my problem is NJ has become a terrible state to invest in.  STill no sign of being able to evict and no idea what the future state for the process will be.  Feels like they are trying to force a transition of assets.  Secondly, the property itself has had a lot of non paying tenants in the past so for me personally, not sure if that local neighborhood is really a winner for me.  1031 exchange requires you to replace the property within a certain period of time and i just cannot find anything in that short window.  I think I will be looking towards understanding how to safely invest out of state going fwd. 

    1Reply
  • Michael K GallagherBusiness Member
    Real Estate Agent · Columbus OH · Member since 2018 · 1k+ posts · 1k+ votes
    5y

    @Devang Patel I tend to think that investors get caught in a feedback loop about what the "right decision is", and this tends to just lead to inaction.  If you take away the "right and wrong" and simply think about what you want long term...it makes it easy to align your current decision with that long term goal.  If you want to live passively off of rental income in the future, it makes sense to hold onto your assets currently.  If you don't need that income in the future and have identified another investment vehicle that gets you closer to that passive lifestyle, perhaps in a different state...by all means go for it!  perhaps you want to cash out and throw the money into a fund like Open Door Capitol and just let someone else handle if for you...thats a great option too.  The point is to think about the end, and then simply ask yourself "what is the next best step I can take to get me closer to that goal?"


    I find doing this cuts out the FOMO associated with "doing the best or most correct thing."

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    3Reply
  • Chai Jonn
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    5y

    @Kumar Gaurav

    I included all of the costs and 1031 exchange provider and added 2 percent more. I have few markets I am looking into for replacement properties. I am also definitely looking at the option of HELOC.

    0Reply
  • Chai Jonn
    Rental Property Investor · Nashville, TN · Member since 2016 · 179 posts · 42 votes
    5y

    @Kumar Gaurav

    There is no capital gains under 1031

    0Reply
  • Devang Patel
    OP
    South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
    5y

    @Chai Jonn if you can execute on teh 1031 this is a great time to do it to move up in terms of quality of collateral.  I find it absurd that biden admin is trying to remove 1031 exchange.

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Mike Dymski:

    As investors, we need to be more than a one trick pony so we can pivot as market conditions change. 

    Yes!  We never should be all-in buying or all-in selling.  Case by case as your and market conditions change.

    I have also been pivoting into other asset classes and potentially will be different areas.  As headaches (hassle factor not mentioned) or extremely high equity homes become vacant, I've been exchanging into multi and commercial assets.  

    I'm even considering OOS seriously for the first time.  Blue states are tough, but i also don't forecast seeing the same appreciation rates in other places as I have in my backyard.

    Sometimes  the ROE falls below your target min simply because it is now worth so much more.  Some of my 1%ers became .5%ers and had to go, but it's always case by case with market, tax, hassle and personal considerations all taken into account. 

    4Reply
  • Tracy Minick
    Rental Property Investor · Monroe, WA · Member since 2018 · 177 posts · 98 votes
    5y

    @Devang Patel

    Such a real question!

    We were in the same situation with amazing gains! We opted to hold as the cost of selling and securing new property even with the tax benefit of a 1031 exchange is daunting. I believe the future is to hold them and sell them later on contract to allow yourself to have the additional cash flow without the huge gains.

    0Reply
  • Brett S.
    Investor · Kalamazoo, MI · Member since 2014 · 60 posts · 25 votes
    5y

    What does your IPS (investment policy statement) say to do?  Don't have one?  Go put one together.

    Without one of those no one can tell you what you should do correctly and in any case you have no basis for valuing one persons advice vs someone else.


    If you did have an IPS, it would most likely indicate that the recent run up in real estate prices means your RE portion of your investment portfolio is over weighted.  So in that way you most certainly sell.

    The only reason you shouldn't sell at least some right now is if you have an expectation of 100% of your retirement portfolio is real estate rentals. Some people do that. Too undiversified for me though.

    Another alternative is to sell some of the physical properties and purchase an equal amount of a RE mutual fund to allow you to rebalance your real estate portfolio with non-real estate investments more easily and frequently in the future.

    0Reply
  • Steven Goldman
    Lender · PA · Member since 2019 · 535 posts · 461 votes
    5y

    I am not qualified to comment on personal investment strategy. But I can comment on the current real estate bubble and the cycles during my lifetime. Over the years when we are in a hyper inflationary real estate bubble the smart multiple door investors sell their inventory when they believe the bubble is near bursting. Most of those investors were seasoned and middle aged. So, I believe that the decision to sell or not, depends on your age and future plans. All of Bret S. comments are relevant and should be considered. 

    I would not take a HELOC against the equity. This could put you in a precarious position when the bubble bursts. Among the many real estate hats I wear, or have worn is negotiating short sales and loan modifications. In 2008 when the last bubble burst, the multiple door investors who overleveraged against equity, were my best customers. All lost some, many lost everything.

    2Reply
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