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

    Well obviously there are many different opinions and strategies and they can all work.  Guess that is a nice thing about RE, you can conduct your business however you want as long as its profitable and meets your expectations.

    2Reply
  • Billy Smith
    Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes
    7y

    I hold all my SFH but they must be in an A /B area they are easy to sale vs multi family.

    The value keeps going up yes there are some times that the growth is not great but, in my area, even in bad times I still get growth.

    When the SFH is paid for I can quickly get a project fund set up to fix what comes knocking.

    Replacing roofs etc.… is not a big deal only because I know who to use, plus the ability to save money on projects!

    With a large amount of SFH that are heavily leveraged only flowing a little cash per month a roof job could really sink your business model

    Fact a few of this SFH I would live in later in life.

    0Reply
  • Chris Kimsey
    Rental Property Investor · Brenham, TX · Member since 2018 · 3 posts · 1 vote
    7y

    Well one book I really enjoyed was Mike butlers book landlording on autopilot.

    All he invests in is SFRs.

    One thing he talks about is keeping your tenants forever.

    He has many strategies for increasing rent and keeping the tenants happy all while seamlessly systematizing your business.

    If buying hold forever is good enough for Mike Butler then I think there is money to be made even in holding forever.

    However I definitely think there is an argument to be made for 1031 exchanging troubled properties.

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  • Brent Paul
    Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    7y

    I think it's a solid investment.  You have most of the major repairs done right away which should free up some extra money.  Someone else is paying down your house so that's a big plus.  You will probably see some sort of appreciation in property value down the line.  But if you are in it for the long haul that won't matter right now.  Worse comes to worse you could always sell that property and 1031 exchange into something else.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y
    Originally posted by @Wade G.:

    I have tried to figure this out but I get lost in the details. 

    - no intent of ever paying off the house

    - sell and pay capital gains tax rather than 1031

    Are SFHs worth keeping more than a few years?  in general, yes definitely.  Think of how much time, effort and costs went into purchasing it in the first place.  Gotta do it again when re-deploying.  The law of diminishing returns comes into play, especially at this stage of the market cycle and this historic time of massive cash on the sidelines earning nothing, looking to be put in play competing for a finite number of assets.

    Limiting ourselves with blanket-ish assumptions like not paying mortgages off or not 1031 exchanging at exit is, well, limiting.

    As I've gone along in this over the last 17 years, my hassle threshold has changed and my mission statement has changed.  We all grow and evolve so I try to not set generic assumptions on things that need to be evaluated case by case like when to decide to exit an asset. Many factors should play a role in that decision.

    I didn't think paying mortgages off was possible or a good idea either- in the beginning.  Didn't think I'd ever see such gains in value or accrue such huge amounts of accumulated depreciation that I'd need to go through the hassles of an exchange.  

    Didn't think neighborhoods would change or my headache threshold would lower.  Didn't think I would find great personal value by blessing other young investors or first-time buyers with a good first deal/home.  Lots of factors. 

    My 6-time Jeopardy winner bro in law just came to visit.  He showed me a pie chart he presented at his mastermind group.  A little sliver is what we know.  A slightly larger sliver is what we know we don't know.  95+% is what we don't know we don't know.  

    Don't limit yourself with limiting assumption when evaluating big decisions. Leave yourself LOTS of room to learn and experience what you don't know you don't know!








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  • Draic McClanahan
    Rental Property Investor · Rocklin, CA · Member since 2019 · 10 posts · 0 votes
    7y

    Great thread, this is something I have been trying to figure out as well. 

    I have a long term rental in CA that has a good appreciation run over last 10 years. The market has flattened out a bit in Sacramento. The rental does not have an impressive cash flow compared to the equity in it now. On paper, it would seem to make sense to take the equity and reallocate to a better cash flowing market. My attempt at a comparison is below.

    Background on existing rental:

    • Value:~ $400K
    • Equity: ~$250K
    • Original Downpayment: ~$25K
    • Principal paydown: ~$7K/year (loan has 15 yrs left)
    • Price to Rent Ration: .47
    • Cashflow: $150/month

    The thought would be to take the equity and buy several lower value, but better cash flowing SFRs in a market such as Kansas City. I put both scenarios in a rental calculator for a comparison.

    Assumptions

    1. --1% appreciation in both markets (Sacramento has had some wild swings over the last 15 yrs, who knows what the next 15 will bring)
    2. --KC example based on a listing currently on Roofstock: $100K price, $1000 rent. Just using this as it assumes that there is renter is in place and limited initial repairs needed. No BRRRR considered for this calculation.
    3. --There would be (6) similar property purchased for this portfolio. (some effort required there.)
    4. --Funds would be based on: $250K - sales commission - capital gains = $180K. $30K used to put 25% down on each 100K property + closing costs, etc.
    5. --At year 16, CA SFR would be paid off and cash flow would increase without the mortgage costs.
    1. Here is the comparison:

    Overall, in this scenario, in 15 years there would be a 108K benefit to selling and moving equity to KC. Also, year 16+ cashflow would still be better ($2K/yr) with KC portfolio compared to the paid off CA property.

    Feel free to poke holes. Any negatives in addition to the effort and actual execution (with all of the potential headaches involved)?

    0Reply
  • Jasmine Hu
    Rental Property Investor · Tysons, VA · Member since 2015 · 73 posts · 45 votes
    7y

    @Draic McClanahan Do 1031 exchange, do not pay gains. If not you have to give back all depreciation on building which will be huge for 10 years. 


    2Reply
  • Draic McClanahan
    Rental Property Investor · Rocklin, CA · Member since 2019 · 10 posts · 0 votes
    7y
    Originally posted by @Jasmine Hu:

    @Draic McClanahan Do 1031 exchange, do not pay gains. If not you have to give back all depreciation on building which will be huge for 10 years. 


    Agreed.  However, it seems difficult to pull off with multiple properties within the time limit of the 1031.  Maybe buying a set portfolio in one go?

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

    @Draic McClanahan Do 1031 exchange, do not pay gains. If not you have to give back all depreciation on building which will be huge for 10 years. 


    Agreed.  However, it seems difficult to pull off with multiple properties within the time limit of the 1031.  Maybe buying a set portfolio in one go?

    Why is it difficult?

    0Reply
  • Draic McClanahan
    Rental Property Investor · Rocklin, CA · Member since 2019 · 10 posts · 0 votes
    7y
    Originally posted by @Joe Villeneuve:
    Originally posted by @Draic McClanahan:
    Originally posted by @Jasmine Hu:

    @Draic McClanahan Do 1031 exchange, do not pay gains. If not you have to give back all depreciation on building which will be huge for 10 years. 


    Agreed.  However, it seems difficult to pull off with multiple properties within the time limit of the 1031.  Maybe buying a set portfolio in one go?

    Why is it difficult?

    Seems like being able to identify several quality deals and have them close within the 1031 limit would some require a bit of alignment of the stars.

    Maybe buying turnkeys?

    Have you had success with multiple property 1031s?

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Draic McClanahan:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Draic McClanahan:
    Originally posted by @Jasmine Hu:

    @Draic McClanahan Do 1031 exchange, do not pay gains. If not you have to give back all depreciation on building which will be huge for 10 years. 


    Agreed.  However, it seems difficult to pull off with multiple properties within the time limit of the 1031.  Maybe buying a set portfolio in one go?

    Why is it difficult?

    Seems like being able to identify several quality deals and have them close within the 1031 limit would some require a bit of alignment of the stars.

    Maybe buying turnkeys?

    Have you had success with multiple property 1031s?

    Turnkey is one option...or, just a bigger property...or, just be proactive in our searches.  If you are looking for markets (as you should be) instead of properties, finding the next set of properties should be much easier.

    0Reply
  • Account Closed
    Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
    7y

    Love this thread. There are so many different ways to make money in real estate based on your personal goals. Appreciate all the input!

    0Reply
  • Shawn Coverdell
    Investor · Clatskanie, OR · Member since 2014 · 212 posts · 233 votes
    6y

    Wife and I decided to finish our last rehab, get it rented and travel the earth. We will try to resist buying more homes (very addicting!!!!)  and enjoy the finer things. Take a cash position until the next housing crash possibly. If your passive income is more than you can spend even while traveling excessively, do you need to generate more?   I think many of us have cracked the code, broke our chains and beat the game. Keep playing anyways?  

    I often wonder if the only reason I keep investing is because I am still in disbelief that I am financially free?!? I am not sure what to make of it to tell you the truth. 

    Maybe we will run into some ancient wise man in our travels who can clear it up, but for now, especially in this market it makes no sense to deal with all the drama. 

    We live in an age of Hotwire and expedia and all these sites. Wow. I am booking flights to places I only dreamed of seeing!!!

    I am laying down my spreadsheets and picking up an itinerary.  

    0Reply
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