Hold or Sell? Need advice

9 Replies

My wife and I own 4 properties, 1 commercial building and 3 condos, soon to be 2 as I just sold one that is in escrow. We have 2 units in Folsom, Ca which is a middle-upper end community and the units have been fantastic rentals and will continue to be for the long haul. My only play here would be to sell while the market is high stock pile cash and then buy when the market crashes. I am not sure if it makes more sense to sell one or the other or just not sell either. First unit is a 1/1 we paid $135k for it and it’s worth $290k. We owe $103k. Monthly income of $340 on $1650 rent. 4.25% loan with 11 years remaining. Second unit is a 2/2 we paid $287k and it’s worth $355k. We owe $265k. Monthly income of $390 on $1994 rent. This was a personal residence that went through a loan mod when things were tough and was converted to a 40 year mortgage to lower the monthly payments. We still have 35 years left at 4.75% So for that reason I dislike. I would prefer to keep the 2 bed/2 bath because I think they rent better than 1/1 although we have never had trouble renting either. My mind changes dad by day if I should keep them or sell them. If I sold my 2/2 I could just about pay off my 1/1. The other unit I am selling was owned outright and made us $1200 per month. We are in escrow to buy another unit which will do the same. So if I sold my 2/2 unit would get around $75k after fees/taxes (I can avoid most tax on this unit). Then i can pay off the 1/1 which would give us $1250 a month and $1200 a month from the two condos. Part of me wants to de-risk by paying the mortgages off before this market crashes. We are both 33 and have income that is affected heavily my the real estate market. So when it crashes we will be making much less. On the flip side I can sell my 1/1 which has a lot more equity and pay a sizable amount to the loan on the 2/2. Thoughts?!?!? Thank you in advance.

There are many possible problems with selling now.

You assume a crash is coming soon. I see no signs of an eminent crash in Folsom. On the other hand, I see complaints daily of high rents and no supply. The population in Folsom and the broader area continues to grow faster than the housing supply.

Being 33, you only have firsthand experience with one market cycle - the recent one with a major crash. That’s rare and the normal case is a smaller correction. If you sell now, chances are good the market will continue to grow for awhile, have a correction at some point, and then grow again. There is absolutely no guarantee that prices will decline even to where they are today. They could go up another 20%, drop 10%, and then go up again from there.

Turning over properties is expensive. You’ll have commissions, likely some repairs, and a ton of lost time dealing with they buying and selling.

Last thing I’ll point out is your loans are at good interest rates. If you sell now and try to buy again soon, you’ll have higher rates. Again, no guarantees of rates dropping back into the low-mid 4% range during the next correction.

I cant speak to your market but in general I agree with @Jeremy Brown that its probably a bad idea to sell and hold cash.  I dont think timing the market is ever really possible and on top of that you have nice cashflow.  I doubt that rents will decrease in many markets and your loans are fixed rates so might as well hold on see what the market does and sell only when you have an immediate need for cash or if you find a better deal you want to get into.  It would be fine to sell these at a high price and buy something else that gets a better return if possible but in absence of that I'd hold on

The Folsom rental market has very tight supply for units and high demand and affluent area's real estate markets are better insulated from downturns than less affluent areas.  I am personally choosing to hold my rental property in Folsom, mostly for potential appreciation.   I will also point out that real estate rental markets and real estate values don't rise and fall in lock step.  They are different markets serving different customer bases.  Do renters care if mortgage interest rates go up?  Nope, doesn't affect them directly.    If you have sufficient cash flow, then you will not be forced to sell during a recession.  You are locked into a good rate a 4.25%.  The real deciding factor is what alternative investments you would switch to if you sold.  I'll be you could find an investment that could do better than 4.25%, which is what you would get by paying down a mortgage.  Don't discount the value of being able to sleep at night, though.  If your investments are keeping you up at night, that alone is a good reason to re-evaluate your holdings to better match your risk tolerance and long term goals.

Thank you for the responses.

Follow up...I am not sure someone had anything to say about selling to pay off another property.

We would still be in the rental markets as I have others but I can have access to more cash by selling 1 unit and then can redeploy the cash when needed by taking it out of the unit that is owned free and clear.

I'd sell and just lend the money out. If you believe the market is "going to crash" than why keep any real estate? Lend at really really attractive LTV rates

Hi Dustin,

I agree with what Tobias said when he brings up the sleep factor. If you're having a hard time sleeping or worrying about your investments - it's probably best to rethink your strategy. The way I see it, you're cash flowing real nice off both units and have good rates locked in on both properties. A lot of the buyers in Folsom and the surrounding areas right now are from silicon valley/ bay area folks that cashed out big on their previous properties and are coming up here amazed at what their money gets them. In other words - a lot of cash deals and large down payments so a large crash is unlikely. I would think that worst case scenario is you lower rents in a big market down turn and make no profit but have a tenant build your equity while you wait for rents to go back up. Good luck and I'd be interested to hear what you decide to do.

Ryan...no I am not losing sleep not in the slightest way. I should have chosen my words better when I said crash. I agree with a plateau especially in Folsom. But selling and capturing the high value and thus equity would pay a unit off.

Maybe this is easier asked this way...should I pay of a mortgage on a rental unit or not.

The reason I did not phrase my initial question this way is because I wanted to specifically get input knowing I am selling a unit that has profit rather than using money from say my savings or 9-5 job.

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