When should I sell my rental property
Singapore · Member since 2019 · 78 posts · 9 votes
When is the best time to sell my rental property? Thanks!
5-7 years. That's when the CAPEX starts to kick in for all the items you didn't replace when you first got the property. Replace them when you buy, and you can bury the cost in the mortgage and have the tenants pay them off in small amounts over time. The cost will be spread out over the length of the mortgage (30 years), so in reality, you're not even going to pay full price for the use of it.
Pay for it after you buy the property, and it's a lump sum out of your pocket...and all that cash flow you made up to that point goes "bye-bye" in what seems like an instant.
Here is my example. I have an 8-plex that I bought in 2017 for $175,000. He was desperate to sell because his Rural Dev. loan had been paid off and his section 8 classification ended, however tenants weren't paying the full rent like they were supposed to. His numbers were horrible because of this, and also because he's an older gentleman and paid for everything to be done there. It had been listed for a while and a couple of sales had fallen through. I offered him his price on a contract for deed, with 5% interest, $800 per month, and $10,000 now, $10,000 in 6 months, and $10,000 in 12 months. I set it for 5 years, but told him I'd pay it off as soon as I could get bank financing. (A little over a year later I was able to get the financing and the appraisal came out at $300,000)
I immediately laid down the law there, started getting the rents up to market, got rid of bad tenants, remodeled 3 of the units, added landscaping, took care of deferred maintenance, etc. If I were to sell it right now for the $300,000 (I currently owe $150,000) I would walk away with $150,000 that I could use on a 1031 as 20% down on a $750,000 building.
I would only be using the money I have already invested, plus equity, and my NOI on the larger building would be much greater. This is why I will sell. However, I'm waiting until next summer because I'm moving and want to invest there :)
You have to sell when it works for you. The whole goal is to improve your standard of living and cash flow.
Thanks for taking the time to reply to my post! I really appreciate it! In your reply, I summarised that I should sell my property when I think I have enough to make a better investment instead of holding onto this property even if it is cash flowing pretty well. Is this correct?
Here is my example. I have an 8-plex that I bought in 2017 for $175,000. He was desperate to sell because his Rural Dev. loan had been paid off and his section 8 classification ended, however tenants weren't paying the full rent like they were supposed to. His numbers were horrible because of this, and also because he's an older gentleman and paid for everything to be done there. It had been listed for a while and a couple of sales had fallen through. I offered him his price on a contract for deed, with 5% interest, $800 per month, and $10,000 now, $10,000 in 6 months, and $10,000 in 12 months. I set it for 5 years, but told him I'd pay it off as soon as I could get bank financing. (A little over a year later I was able to get the financing and the appraisal came out at $300,000)
I immediately laid down the law there, started getting the rents up to market, got rid of bad tenants, remodeled 3 of the units, added landscaping, took care of deferred maintenance, etc. If I were to sell it right now for the $300,000 (I currently owe $150,000) I would walk away with $150,000 that I could use on a 1031 as 20% down on a $750,000 building.
I would only be using the money I have already invested, plus equity, and my NOI on the larger building would be much greater. This is why I will sell. However, I'm waiting until next summer because I'm moving and want to invest there :)
You have to sell when it works for you. The whole goal is to improve your standard of living and cash flow.
Thanks for taking the time to reply to my post! I really appreciate it! In your reply, I summarised that I should sell my property when I think I have enough to make a better investment instead of holding onto this property even if it is cash flowing pretty well. Is this correct?
It depends on what your goals are. If you are happy with your cash flow and it's working for you then keep it. If your goal is more cash flow or a larger building that can support a property manager and make it more hands-off for you, then do that. You have to decide what your long-term goals are and do what is going to get you there. Good luck :)