When to sell?

Question

My husband and I have owned this property since 2005—it was our first home, so there’s definitely some emotional attachment. However, from an investment standpoint, it hasn’t performed as well as we’d like. We’ve kept family in the home and consistently rented it below market value, which has limited its income potential.

With our current tenant moving out in June, we’re seriously considering selling. While we recognize the market isn’t at its peak, we feel this may still be the right time to reposition. Our long-term goal is to grow our portfolio from five rental properties to ten over the next few years.

This property is fully paid off, and we’ve already leveraged some of its equity to acquire another investment. At this stage, we don’t have a large amount of liquid capital, but we do see opportunity in the current market to acquire new properties. Selling now could allow us to redeploy that equity into one or even two stronger-performing investments that better align with our growth strategy.

G. Brian Davis · Answer

Hi @Erica Gutke, You’re in a really strong position here. If it hasn’t been producing what you want and you’ve been intentionally renting below market, this transition point with the tenant leaving is a clean moment to make a strategic move. Selling and redeploying that equity into one or two properties that are better aligned with your goals could accelerate your path to ten doors much faster than holding onto something underperforming.

At the same time, it may be worth quickly running the numbers on what the property could do at true market rent, just to confirm whether it’s the asset itself or the way it’s been managed that’s been holding it back. That can give you more confidence in your decision either way.

Bo Smith · Answer

Sell it. You've got 50k in equity (assuming current comps are right), the tenant situation is emotional rather than financial, and you already know what happens when family is involved -- good intentions don't pay the bills. The fact that you're even asking means you already know the answer. Properties with family tenants are anchor deals that drag down portfolio returns.

You're at an interesting spot: k/month cash flow on a 25k property is only 3.7% gross. That's fine for appreciation play, but if you're trying to scale a portfolio, that capital locked up with no real upside isn't working for you. Pull the 50k and put it into two deals that each make 00-1000/month. Now you've got ,600-2000/month on the same capital, doubled or tripled your tenant base (which means lower vacancy risk), and way more operational leverage.

One caution: selling now might trigger capital gains, depending on your cost basis and holding period. Run the numbers on taxes before you decide. But if the post-tax number is still 20-130k to redeploy, that's still plenty of fuel to buy better-performing rentals. Are you looking at single-family homes for your next purchases, or would you consider small multifamily?

Kenneth Garrett · Answer

This is definitely a personal choice as well as a business decision.  Being your first home brings emotional ties to it.

If you can or want to separate the emotional aspect from the business aspect, which is not always easy to do, I would look at the return on my money.

If I decide to sell and I can redeploy that capital with a greater return and feel good about it, I would definitely make the sale if the return makes sense.  If I could make a 15% or better return with that money then, I would make the change.  If less than that, I don’t think I would do it.

You need to consider the opportunity cost you are missing out on by holding this property without a great return.  Clearly, it’s never easy to make these types of emotional decisions, but if it is your goal to acquire additional properties then it makes sense.

I offer one more perspective.  The number of properties is irrelevant in many cases.  It’s the return of your money when you look at it.  Three properties with very small cash flow and not much appreciation v one high cash flowing property with better appreciation.  Which is the better investment and return.  That is the question I think you should ask yourself.  I know we get caught up in the number of doors we own, but I would rather have better net cash flow and net worth than the number of properties.

Best of Luck.

Eric DeNardo · Answer

Hey @Erica Gutke

You’re not wrong in that it’s been a tough couple of years to sell real estate in Denver and most of the nation. However, homes that look good online and show well in person, are moving fast.

The timing your tenant is moving out is fairly good timing to sell your property, as the summer is the best time to sell a property in Denver. You would want to move quick though to get it ready by fixing small things to have your home shine when it goes to market.

Happy to have a brief chat with you about your specific goals and how to match that with the market.

Pierre Guirguis · Answer

At this point it’s less about timing the market and more about capital allocation. You have a paid-off property that’s underperforming and tying up equity, while your goal is to grow from 5 to 10 units. That’s a mismatch. If the property isn’t producing strong cash flow at market rents, or doesn’t have a clear path to get there, it’s probably not the best use of your equity anymore.

The real question is what that equity could do elsewhere. If selling lets you acquire one or two assets with better income and growth potential, that’s usually how people break through the plateau you’re describing. The emotional side is real, especially with a first home, but from a portfolio standpoint it sounds like you’re already thinking about it the right way. A lot of investors get stuck holding properties out of habit, not performance.

Marc Winter · Answer

@Erica Gutke, this sounds like a great opportunity to use a 1031 exchange to eliminate any capital gains tax so you can better deploy all  the gain from the sale.

Erica Gutke · Answer

Thank you Bo!  Good point I on the capital gains I will look into that.  I would love to find a duplex to invest in getting that kind of cash a month seems hard to come by.

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