Never EVER Sell MFR Properties

[Mark Douglas]

I've heard more and more frequently in the various podcasts I listen to, that the more seasoned investors go by the general philosophy of never selling their multifamily properties.  Assuming that these properties are phenomenal in terms of cash flow, does this strategy have a downside?

[Bryan Wilson]

I think it depends on the risk profile though.  4.5% annually in a buy and hold strategy is nearly as safe as investing in treasuries and providing 2-3x the return.  

Not factoring the appreciation on properties some were cash-flowing debt free for 20+ years dramatically increasing the return on investment.  Granted this was a time period in which they were plucking up farm property for under $30K and rural areas blended with planned development over time.  Some of those properties were cash-flowing within 15 years $50k+.  So not only do you still have the cash-flow, properties worth 1000% what you paid for them, but you have also accumulated $1.5M worth of cash over that time frame per property.  Scaling that out and you create a fortune.    

Redeploying those funds could lead to a number of different scenarios including, taking small/large losses, break-even, or small/large profits.  I compare it to the stock market if you don't have a sound strategy that you can implement eventually you will go broke with that method in economic downturns if you do not have safeguards in place.  Whereas, the long game of buy and hold real estate just rides through the down periods and allows you to continue growing your account by averaging your portfolio down during the down periods and buying back up in the prosperous periods.  

Another aspect to remember is many of us in the forum have lived during the great decline in interest rates.  We don't even know what a conventional bank loan at 14% with paying 2 points looks like, but during the late 70s and early 80s you couldn't get a 30 year fixed rate for less than 11%.  So attempting to refinance and redeploy capital during that period would have been a losing battle.  

We continue to operate in low interest environments so it is very simple to think we can just refinance into the future, but at some point in time we will relive a period in time in which rates have moved higher off these historic lows.  It won't be at once, but in the above scenario it is proof that over the 50 years it was not a sound option during a long period of time.  Rates were above 7% from 1972-1990.  That is a pretty long period of time in which you would have been struggling to refinance appropriately to continue to cash flow if the appreciation hadn't matched up to the rates at the time.