Hold or Sell Multifamily with High Appreciation?

52 Replies

Greetings good people,

I'm looking for some feedback on the decision to sell or a hold a duplex I've had for 6 years. In short, it cash flows very well ($1000/month, partly because I put 40% down), is in a desirable and growing town in an excellent neighborhood with increasing rents and I have never had problems getting tenants. The market has become very inflated. 

Price paid for property: $265k

Potential selling price: $600k

I hate to mess with a good thing in considering selling, but I am wondering what the most advantageous strategy would be. An implication of selling is that to reinvest I would need to buy out of the area, likely out of state.

Any thoughts are much appreciated.

Sell it faster than you can re-read this post.  Faster if you can.

That 40% you put down, to get higher CF, is an illusion.  All you did was pay for that "higher cash flow" upfront.  Realize that your cost is completely restricted to what comes out of your pocket...like your DP.  The more that comes out of your pocket, the more YOU paid for the property...and, the longer it takes you to get a profit.  Profit comes after you recover your cost.

Her are your numbers:

1 - Your cost was 40% DP, or $106k
2 - Your recovery comes from your CF.  $12,000/year.
3 - Recovery period =~ 9 years.  That's way too long.
On the other hand, you have $335k in cash (hidden in equity) just waiting (and dying) for you to put it into play.  Go out an use it as a 20% DP, and buy a property, or properties) worth $1.675M (yes you read that correctly).  Imagine what the accumulated CF could be from that.

Agreed with Joe. Cash in that win and invest in better cash flowing properties. Either on your own or more passively through syndication.

@Joe Villeneuve Much thanks for the feedback; I see your points and they make sense. A $1.675M property could be very good in a market less expensive than the western Washington market my duplex is in. Going to have to do some math and research. Would you immediately reinvest or would you wait (presumptively) for the market to come down a bit?

If you’re worried about the “poor return” of the $12k on your $105k that’s a horrible reason to sell. You’ll owe at least $50k in taxes, poof gone. Do a cash out refi for $105k more than you owe and you’re returns are infinite. Heck if you haven’t done any refis in the last 6 years you’ll pry lower your interest rate. 

If you don’t save any interest, $105k at 3% is $445/mo. So you’ll drop your cashflow (not your income, which is much higher, your cashflow.) to $555/mo. But that $555/mo is being made on zero of your money, hence infinite returns. And that $100k is tax free. 

If it makes you feel better, take out $200k, you’ll be cashflow neutral (you’ll save a little because you’re turning a 24 year loan back in to a 30 year loan so your original balance payment will go down, and you’ll have $200k tax free in your pocket to buy something else if you so desire. (Up to $800k with 25% down.)

If you want to be done with real estate, fine sell.  But I would never sell a performing asset in a neighborhood I know for a random property in another state I didn’t. And if you don’t do the 1031 exchange you might as well go out in the front yard and set $50,000 on fire. 

Ps. If you;re going to invest out of state in an unknown area, you might as well just do it with that E200k cash out refi and pay cash. At least it’s a small tax free bet with your profit. But I don’t really even like that idea. 

@Bill Brandt  Much thanks for your thoughts. My gut, at least now, tells me to keep the property for the reasons you mentioned; I know the area/market and it's always performed very well.

My plan prior to my thought of selling was to cash out refi, but then interest rates crept up a bit and a new lower interest rate would only save me $110/month if no cash was pulled out. I'd therefore switched my thinking to a HELOC to save on refi costs. I've never done a HELOC; would be interested in your thoughts on the HELOC vs cash out.

Thanks again.

@Jesse Stein , I like @Bill Brandt s emphasis on a return of 12K on an investment of $106.  That's not bad at all.  But (capital B)...

1. You're not netting 12/year.  Your cash flowing.  Which means that probably there are no allowances for vacancy, cap ex, extraordinary expenses (which will come at you).  So you need to put those into your equations.  Because they will happen.

2. The next words by everyone are all about a refinance.  And that's something to put into the hopper.  But ultimately this property isn't performing nearly as good as at first glance.  And a refi isn't going to improve it's performance for sure.  

I'm in the camp with @Joe Villeneuve this time.  I dont think you'd be happy with this one in your portfolio after a big refi.  And if you sell you have the opportunity to start fresh with over $400K of cash to purchase cash flow.  And if you can get $1000 from 100K of cash then think what you can get with $400K.

But don't burn the bills in the front yard like Bill said (he's still on parole for that one).  Do the 1031 and reposition entirely.

Originally posted by @Jesse Stein :

@Joe Villeneuve Much thanks for the feedback; I see your points and they make sense. A $1.675M property could be very good in a market less expensive than the western Washington market my duplex is in. Going to have to do some math and research. Would you immediately reinvest or would you wait (presumptively) for the market to come down a bit?

This isn't the stock market. Throw out that kind of thinking when you're talking about REI. They are NOT the same. In this case, that means forget the idea that you need to "time the market". The "market" you should be thinking of in REI is the specific/immediate area/location that the property is in...not the economy.

The numbers that are specific to a property at any current time is what makes a deal a deal...not the economic market. If a property cash flows at the number you need it to CF at, then the deal is a deal. If you are a flipper, and you can flip a property in a short period of time based on what the current cost is to you, and the current ARV is, ...in other words the "spread",...then it's a good deal.

A deal is a deal.  The current or future economic climate can influence the immediate numbers, but if a profit can be made now, based on the current numbers, then it's a good deal.  Besides, can you tell me with your crystal ball and/or Ouija Board what the future will bring?

Originally posted by @Jesse Stein :

Greetings good people,

I'm looking for some feedback on the decision to sell or a hold a duplex I've had for 6 years. In short, it cash flows very well ($1000/month, partly because I put 40% down), is in a desirable and growing town in an excellent neighborhood with increasing rents and I have never had problems getting tenants. The market has become very inflated. 

Price paid for property: $265k

Potential selling price: $600k

I hate to mess with a good thing in considering selling, but I am wondering what the most advantageous strategy would be. An implication of selling is that to reinvest I would need to buy out of the area, likely out of state.

Any thoughts are much appreciated.

I think it is unfortunate that it was not leveraged better from purchase. At 75% LTV the property would have cost $66k. The property has appreciated $4.6k/month over the hold period. It would have taken 14 months to have recouped your initial investment. The return from the appreciation would have been outstanding. If you had refinanced it after it had 33%, you could have extracted all of you initial investment at 75% LTV and been on infinite return. Would of, could of. 20/20 hindsight. You rate of return from the appreciation would have been 40/25 (=1.6) times better than the great return that you achieved.

I am assuming that your $1k cash flow is accounting for all expenses including maintenance/cap ex. A refinance to 75% LTV will batter that cash flow but you understand this. However, it will significantly increase your rate of return from the appreciation and it would permit you to scale solely from the profits from this property.

I also am assuming that the rent appreciation at least approached the property appreciation.   

Rates have gone up significantly in the last few weeks but are still low from a historical perspective. Most HELOC are variable. I only use HELOC for short term debt such as a purchase that I plan to rehab and refi in a year or less. I use fixed refi for my long term debt. Fixed loan acts as hedge against inflation and let's me not worry about rates (I sleep well).

If this was my property, I would cash out refi to as high LTV as I can get without ballooning the rates (likely 75% LTV). I would invest the extracted money into something that is expected to have far better return than my loan over the long term (even S&p500 has lifetime return over 9%). I would probably look to invest in another property. I would hope over the long term the appreciation of the existing property would come close to what you have experienced.

By the way, your monthly appreciation rate beats my best 2 properties which are both over $4k/month and now million dollar properties (my hold on my properties are significantly longer than 6 years). I think your purchase is a home run purchase even at your 60% LTV purchase. Well done.

Good luck


If you can leverage that money and turn it into higher monthly cash flow I would explore selling or 1031 exchange. You may also just want to hold onto the property, refinance, and go do another deal. You're in a very advantageous position! I'd say you could take many different avenues to create more passive income. Good luck. 

@Jesse Stein I had a paid off rental home (former residence). My yearly rent was $33k. I was thrilled! I did a 1031 and purchased a new asset that rents for $100,00/ year. I still have $$ that I need to refi out of my building. Just looking for what I want next.

This is not my cash flow but you get the idea. I would 1031 it!! Best wishes!!

@Joe Splitrock is on the money as usual.

If you wanted to cash in your chips completely you could throw the proceeds into a Index fund and conservatively withdraw each year more then you are cash-flowing. And there is an excellent chance that that would continue to grow  each year (equities av. 12%).

My question: is there a better investment opportunity ? If so sell and reinvest - if not hold. 

No reason to sell if you cant get more $$ on your money elsewhere. 

Also leverage is not the be all end all. So i would not recommend leveraging if it does not get you more $$. 

(Of course you need to ask yourself why are you investing - cash flow or appreciation or asset acquisition etc) 

@Jesse Stein with $100k down, and 325k appreciation and 12k/year in cash flow, your return on equity is pretty low around 3%. You can do much better. Conservativly you could double your cashflow, if you were a bit more aggressive you can make quadruple it or much more. Sell it and but 2 quads.

@Jesse Stein given the current administration’s desire to eliminate the 1031 exchange and eliminate the capital gains rate by raising it to 39.6%, I encourage you to think about selling now and finding something to reinvest in. Good luck and I’m happy to discuss this more offline.

Originally posted by @Michael Plante :

If I had 600k to invest 
I would not be happy making $1000 a month 
would you?

You miss the point that he's actually made $5,600/month including appreciation. Cashflow chasers never seem to see this. I have decent cashflow but it's nothing on my appreciation.

Originally posted by @Jesse Stein :

Greetings good people,

I'm looking for some feedback on the decision to sell or a hold a duplex I've had for 6 years. In short, it cash flows very well ($1000/month, partly because I put 40% down), is in a desirable and growing town in an excellent neighborhood with increasing rents and I have never had problems getting tenants. The market has become very inflated. 

Price paid for property: $265k

Potential selling price: $600k

I hate to mess with a good thing in considering selling, but I am wondering what the most advantageous strategy would be. An implication of selling is that to reinvest I would need to buy out of the area, likely out of state.

Any thoughts are much appreciated.

I've done a cash-out refinancing of a property that sky-rocketed in value because I wanted to get rid of the dreaded 'dead-equity' that is so feared here on BP. While it has allowed me to do some nice things with that cash, it really isn't all that it's cracked up to be. Why? Because you are still holding an asset with a razor-thin return on assets. If your plan is to expand your portfolio, I would go with the 1031 exchange....turn that duplex into a few 4-unit properties.

With that said, thanks to Prop 13 in California, I'm also very glad I kept the property. Who knows...maybe 8 years from now, I'll be even more glad I kept it.

Originally posted by @Johann Jells :
Originally posted by @Michael Plante:

If I had 600k to invest 
I would not be happy making $1000 a month 
would you?

You miss the point that he's actually made $5,600/month including appreciation. Cashflow chasers never seem to see this. I have decent cashflow but it's nothing on my appreciation.

Come on man, this is BP. Don't you know that the appreciation (and principal reduction) is meaningless. It's all about the cash flow. 

Owning a property whose price is stagnant, but cashflows $100 a month is better than owning a property that appreciates 10% annually, but cash flows only $99 a month. 

Originally posted by @Greg M. :

Come on man, this is BP. Don't you know that the appreciation (and principal reduction) is meaningless. It's all about the cash flow. 

I long ago concluded this is because most BPers would rather be able to quit their day jobs than actually get rich.