Are SFHs worth keeping more than a few years

General Landlording & Rental Properties
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Are SFHs worth keeping more than a few years

Wade G.
Houston, TX · Member since 2010 · 150 posts · 159 votes

I have tried to figure this out but I get lost in the details.  I have a couple of houses that I have had for over 10 years and a couple for only a few.  I'm trying to figure out if its worth keeping them that long or if its better to sell them a after a couple of years of holding them as rentals and redeploying the capital.  A few details for this scenario:

- houses are bought with equity gains in the beginning

- all repairs (new AC, roof, paint, flooring, etc.,) is replaced at acquisition so house is in great condition

- no intent of ever paying off the house

- appreciation being normal at 3% for this scenario

- cashflow being $400 month, figuring $200 of the $400 for future repairs and vacancy

- sell and pay capital gains tax rather than 1031

So in my scenario I figure most everything has a 10 year life span...AC, faucets, dishwasher, water heater, will need all fresh paint inside and out, etc.  Basically in 10 years the house has to be rehabbed again and 10k -15k spent.  

Selling in a couple of years the house should still be in good condition, should get to keep more of the net cashflow since you only have one set of tenants and avoiding the future big expenses, and you get to redeploy the capital and capture more equity but pay more closing costs and probably some repair costs on new property.

Waiting 10 years you get more appreciation, more mortgage paydown, but more cashflow has to be saved for rehab.  Could probably refi the house and use that money for rehab to buy another property and capture some equity.

I realize there are many variables to this and I hope it makes sense.  I cant keep my thoughts straight when trying to figure it out.  Maybe its a wash when everything is considered.  In my thinking with normal appreciation, good tenants that dont destroy, it may be better to sell the properties after a couple of years and use that money to by another property but only if there is a huge equity gain.  If not buying for huge equity gains maybe just holding the property 10 plus years is the way to go.

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Jeff Brower
Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
7y

I buy mine with the intention to hold forever. When you gain enough equity you can refi or get a heloc and that money is TAX FREE. Vs selling where you pay capital gains. 

Would you rather sell the goose and take a few golden eggs now or keep the goose that lays the golden eggs forever?

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    I never hold my rentals for more than 5-7 years.  Reasons:

    1 - That's when the CAPEX starts to hit. If I replace a roof, for example, when I buy, I can cover the cost in the initial financing, and have it part of the analysis from the start...which means my tenant pays for it (in smaller increments based on the impact on monthly payments). If I have to cover it later, it comes at full price...out of pocket. This means I end up paying for it, and get reimbursed from the rent (tenant...maybe) in pieces.

    2 - I would rather take my profits from appreciation and new equity paid for by my tenants (thank-you) when they accumulate to a useful number, and keep them moving forward...growing exponentially, rather than sitting dormant in the floorboards of a property.  Whether or not that money is in the original property, or a different one as a DP, they both are equal in face value.  The difference is when the money is in the DP, it has much more power...much more value.

    9Reply
  • Dante Feria
    Rental Property Investor · Columbus and Jonesboro GA · Member since 2019 · 72 posts · 56 votes
    7y

    I would hold the property since it’s already fix and has positive cash flow. By keeping the property you generate income , it appreciates in value and your not paying for it. 

    If you sell it , no income , pay capital gains and will have cash to burn . If you will invest it , where can you park that money to generate the same income? 

    14Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    7y

    I like to hold - why not?

    With that appreciation, it compounds over time getting better and better.

    Do you need the money for something else? Can you invest it way better? Will the additional work of a new project be worth it compared to a stabilized performing asset?

    3Reply
  • Jeff Brower
    Real Estate Agent · Willoughby, OH · Member since 2014 · 560 posts · 690 votes
    7y

    I buy mine with the intention to hold forever. When you gain enough equity you can refi or get a heloc and that money is TAX FREE. Vs selling where you pay capital gains. 

    Would you rather sell the goose and take a few golden eggs now or keep the goose that lays the golden eggs forever?

    31Reply
  • Wade G.
    OP
    Houston, TX · Member since 2010 · 150 posts · 159 votes
    7y

    @Joe Villeneuve that is what I have been thinking. CAPEX is hitting now with these 10 year holds. Seems like selling within the first five years makes sense if a large chunk of equity is captured on the new purchase. Otherwise the long term holds seem like more of an appreciation play.

    3Reply
  • Wade G.
    OP
    Houston, TX · Member since 2010 · 150 posts · 159 votes
    7y

    @Jeff Brower that is the other side of it. After 10 years could refi, then use the tax free funds to pay for CAPEX and purchase another property with equity.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    @Wade G.  If the house appreciates a lot and you can buy elsewhere and get more, then yes.  But if the house is keeping up with inflation, how much is it going to cost you to sell it and buy another one?  Realtors fees, closing costs all add up and can cost just as much if not more than replacing a roof or appliances.  then there is the mortgage and how much of the principal has been paid which depends on the term of the mortgage.  After 10 years a 25 or 30 year mortgage will still have a sizable principal owing.

    2Reply
  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    7y

    Unless the neighborhood is declining or you plan to change your strategy to multifamily I would not sell. You lose capital gains, you lose agent fees. If your SFH's still fit your parameters you can just refinance them and access the equity for CAPEX or further acquisitions. Fix and sell is more of a flippers mentality, which is okay too if you have access to more deals to put that money into.

    4Reply
  • Scott JensenPro Member
    Financial Advisor · Blaine, MN · Member since 2014 · 478 posts · 387 votes
    7y

    @Wade G. I've only been at this for a few years now but here's my philosophy:

    - Only buy a rental that you'd be happy to hold for 30+ years.

    - Don't love your properties...They won't love you back. Always be ready to sell if the numbers make sense to deploy capital to another property.

    5Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    If I have a rental that has equity in it, and I move it to a different property...is the value of that original equity somehow not equal to the save value in the new property...or is it worth more?

    If I put that same equity into a new property (or properties), am I not also gaining new equity in those?  Isn't my money, and the new higher values (more than one property now) gaining appreciation faster?

    If I move $50k in equity from a property worth $120k into two DP's, the $50k is still worth $50k...but in a different location(s).  However, the new locations are worth more together than the original location...and, I have twice the cash flow.

    ...and, I've eliminated the CAPEX costs from hitting me in the form of "out of pocket" costs.

    7Reply
  • Andrew HoganPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2016 · 560 posts · 463 votes
    7y

    @Wade G., you've got to do a return on equity calculation. Lot's of people are working hard at paying off their rentals but are getting a low return on their equity. The BRRRR method is essentially taking that equity out and putting it to use somewhere else after you refi. What many people are also doing after pulling equity out is spreading their capital across hundreds and even thousands of doors by owning a small piece of large MF deals.

    3Reply
  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    7y

    Selling a house, then finding and buying two more good deals is a lot of time and work compared to refinancing a property then finding/buying one more good deal. If you are buying freshly rehabbed properties that are not going to need work for the next 10 years then presumably you are paying close to market value, so you are paying for the CAPEX up front. Yeah you get that CAPEX financed but the same is true if you refinance a property and use that money for CAPEX.

    0Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    All depends on what your goals are. If you wanna keep making moves, buying and selling, redeploying capital, rehabbing, renting, etc.... then yeah, the answer is most likely to sell and redeploy as long as the numbers work.

    If you want to realize max cash flow and reduce some of your headaches then I would say ride it out unless something forces you to sell. Make sure you set aside income for capex and that’s a non issue. Refi or get a heloc if you want to use the equity.

    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    It is interesting because @Joe Villeneuve and I have very different views on the types of assets we invest in.  However, I also only hold my properties for roughly 5 years so I am not paying big capex expenses like the roof.  I buy rent ready already rehabbed placed, then 5-7 years later I sell them off and trade up.

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    7Reply
  • Rob B.
    Chicago, IL · Member since 2018 · 546 posts · 227 votes
    7y

    I personally would hold the property for a little while longer; and as mentioned above, the time you'd have to put into securing additional properties vs just following a refi on this one, you'd be best to hold. Definitely, want to make sure the numbers pan out but from the sound of it, this property still has a positive cash flow so you're still generating income over time and is continuing to appreciate in value. @Wade G.

    0Reply
  • Cody Clinton
    Rental Property Investor · South Florida · Member since 2019 · 24 posts · 14 votes
    7y
    Originally posted by @Wade G.:

    I have tried to figure this out but I get lost in the details.  I have a couple of houses that I have had for over 10 years and a couple for only a few.  I'm trying to figure out if its worth keeping them that long or if its better to sell them a after a couple of years of holding them as rentals and redeploying the capital.  A few details for this scenario:

    - houses are bought with equity gains in the beginning

    - all repairs (new AC, roof, paint, flooring, etc.,) is replaced at acquisition so house is in great condition

    - no intent of ever paying off the house

    - appreciation being normal at 3% for this scenario

    - cashflow being $400 month, figuring $200 of the $400 for future repairs and vacancy

    - sell and pay capital gains tax rather than 1031

    So in my scenario I figure most everything has a 10 year life span...AC, faucets, dishwasher, water heater, will need all fresh paint inside and out, etc.  Basically in 10 years the house has to be rehabbed again and 10k -15k spent.  

    Selling in a couple of years the house should still be in good condition, should get to keep more of the net cashflow since you only have one set of tenants and avoiding the future big expenses, and you get to redeploy the capital and capture more equity but pay more closing costs and probably some repair costs on new property.

    Waiting 10 years you get more appreciation, more mortgage paydown, but more cashflow has to be saved for rehab.  Could probably refi the house and use that money for rehab to buy another property and capture some equity.

    I realize there are many variables to this and I hope it makes sense.  I cant keep my thoughts straight when trying to figure it out.  Maybe its a wash when everything is considered.  In my thinking with normal appreciation, good tenants that dont destroy, it may be better to sell the properties after a couple of years and use that money to by another property but only if there is a huge equity gain.  If not buying for huge equity gains maybe just holding the property 10 plus years is the way to go.

     @Wade G. 

    You stated you have zero intent to ever pay the properties off so that seems to me the goal was always to sell and re-purpose the equity. If that's the end game then why all of a sudden the hesitation? Just curious.

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    Fascinating discussion. I am surprised that big dogs like Joe sell down and reinvest.

    Acquisition and disposal costs always eat into your equity so I intend to never sell. Just keep re leveraging the assets and let the tenants pay them off over and over again. I view this as an infinite rate of return because once I have all my money back out of the deal I have zero dollars invested and I am getting on average 10K a year in my jeans from each property. Why sell an ATM that never runs dry?

    12Reply
  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    7y

    Brick house, metal roof, tile floor.  That ought to be worth keeping longer than a few years.

    3Reply
  • Erik B.
    Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
    7y

    Just wondering what cap ex issues are you guys running into after 5-7 years?

    Roof should be good for 25-30 yrs nowadays.

    Cheap water heater might give you a problem around 8-10. good ones will last a lil longer.

    Furnace /ac def longer then 15 years

    Paint? I dont know how younget 10 years wo painting a rental

    9Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    We seem to always have something needing work!  We would be averaging over nearly 10 years about $2500 a year per door.  Typically it's little things that are hard to find the source and repair that add up more than expected items. We simply budget that so i just don't see the benefit of selling it beforehand and going again.  That same house costing us $2500 a year increasing in value by more than that and I haven't got a dime in it anyway.......

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Dean Letfus:

    Fascinating discussion. I am surprised that big dogs like Joe sell down and reinvest.

    Acquisition and disposal costs always eat into your equity so I intend to never sell. Just keep re leveraging the assets and let the tenants pay them off over and over again. I view this as an infinite rate of return because once I have all my money back out of the deal I have zero dollars invested and I am getting on average 10K a year in my jeans from each property. Why sell an ATM that never runs dry?

    I don't focus on the property...I focus on the money moving through the property.  Everything else you said I agree with.  The difference is, I'm just moving the money through the properties faster, and I can control the costs better.  The cost of the turnover is important, and it plays a role in the timing, but the bottom line is the money is the same value when it moves...it's just at a different location...and if I can time that move, and what I am moving is the money I put in, plus the appreciation, plus the principle payoff (thanks tenant...again), and the total allows me to move from one property to two (or more), then my money is working for me...at a higher efficiency.

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    @Joe Villeneuve, I'm intrigued but confused. If you can be bothered could you give me a simple example. I have a house I bought for 60K, valued at 90K. Rented for $1095 a month. My tenant pays the note off for me every let's say 10 years and the property is appreciating by 5% annually and rental appreciation would be modest, maybe 3%.
    So I have no money in the property and I pull 60K out every 10 years on top of the cashflow.

    So you say you would sell it after 5 years let's say, what would you do to get the money working more efficiently?

    4Reply
  • Brant Richardson
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    7y

    I don't understand why "moving the money through the properties" by selling is any better or faster than refinancing and using the money from that for CAPEX and the down payment on a second property.

    3Reply
  • Brandon Ramsay
    Halifax NS · Member since 2019 · 48 posts · 24 votes
    7y

    @Wade G. I would say it depends what you want. If you're happy with the income keep them.

    If you want to step up your game and sell them all. Section 1031 might be good to get into a large apartment building that has even better cashflow.

    Figure out what you end goal, then do whatever leads to that.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Dean Letfus:

    @Joe Villeneuve, I'm intrigued but confused. If you can be bothered could you give me a simple example. I have a house I bought for 60K, valued at 90K. Rented for $1095 a month. My tenant pays the note off for me every let's say 10 years and the property is appreciating by 5% annually and rental appreciation would be modest, maybe 3%.
    So I have no money in the property and I pull 60K out every 10 years on top of the cashflow.

    So you say you would sell it after 5 years let's say, what would you do to get the money working more efficiently?

     Sure.  First, you left out the most important numbers:

    1 - What's the cash flow
    2 - How much did YOU pay for the property.  Not how much did the property cost (you said $60k), how much did YOU pay for it...out of your pocket.  The rest is being paid for by the tenant.
    3 - How is the tenant paying of the note in 10 years?

    0Reply
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