When to sell vs hold rental properties that have appreciated?

Question

I own two houses in Portland, OR, one of which I have lived in the last 8 years- but we Just moved far away. I am debating whether to continue to rent them or to sell one or both of them. From the calculators I've looked at, it seems like it makes more sense very-long-term to hold on, but I'd love other's thoughts/resources (I'm not passionate about passing on as-much-as-possible to my kids when I die).

From a blog post on this site about when to sell, one of the factors was when things have appreciated more than the rents in the area- but I wasn't sure when it was 'enough.' I also saw a blog post by the Financial Samurai that said if he could sell a rental for more than 100x the monthly rent, he should... but I wasn't sure if others liked that as a general rule?

Some info:

-The 'investment property' is worth ~$650K and is paid off. We bought it for $225K and spent another ~$80K on improvements. Rents currently for $2495/mo. (It could be rented for more, maybe $3000/mo, but I'm only comfortable charging so much on principle. However, for some reason I wouldn't feel badly at all selling to the highest bidder)

-The other is worth maybe 525, owe $240K on it at 2.85%, and am currently renting it for 2250. Bought it for $230K.

-Both homes have new windows, kitchens, baths, flooring, electric, solar, landscaping, you name it, with custom tile and woodwork. Even though they don't need major projects or much maintenance, now that we're parents and don't live there, it's still annoying when things come up.

-There is more rental income potential because of the large yards, by having a tiny house/renting out the garage/etc.

What I'm worried about:

-We couldn't help but improve the houses a ton, and part of us feels like it's a 'waste' to just have them rented, as it will put wear and tear on them until we do want to sell... So we're wondering if we'd get more by selling when they look great/fresh?

-We have 3 years, or until we buy another house, for one of them to be considered a 'rental property' and subject to those capital gains. And, we'll probably want to buy another house before then.

We don't need the cash from the sale to buy another house, though it could be helpful. Excited to hear your thoughts!

Bill S. · Answer

@Emily Gowen so as you pointed out you would not have to do a 1031 exchange on your current home to avoid the capital gains tax and coupled with what Dave Foster pointed out I think, speaking from experience you would have a high likelihood of success.

I think you should seriously consider your financial goals and strategies. It's doesn't really sound like you are much into being landlords so doing a 1031 might just change from "annoying when things come up" to full fledged head aches when you buy more and or larger properties in your current market. I would suggest you do some soul searching before you make and decisions to sell. Figure out how you want to handle you investing and what role real estate plays in that.

Lisa Waldman · Answer

Emily,

We sold our multifamily in Portland 4 years ago, and did a 1031 exchange. We were able to exchange most of the funds. We ran out of time which caused us to buy a couple properties we probably shouldn't have at the bottom of our exchange list.The better ones were sold before we could buy them. The market was much more active at the time though than it is now, so it could be easier now. We did end up with good properties too. I'm glad we are out of the Portland market though with so many changes against real estate investors there. If you aren't already aware what happens after the 1031 exchange, you may have to file tax returns every year for Oregon AND Portland every year after you sell. Even if we have no income there any longer, we have to file so they know we have not sold our new 1031 properties, as required by the state. We did not know about having to file Portland also unfortunately. We recently received letters 3 years after the fact from the City of Portland. Now we are dealing with having to file 3 years of returns for Portland, and the penalties and interest are very high. Hoping to get an abatement. It's just something we did not forsee unfortunately.

Dave Foster · Answer

@Emily Gowen, The 45 day timelines are fixed and rigid. And it's not uncommon that investors get a little nervous about the time frames when doing a 1031 exchange. But the perception of difficulty is greater than the reality usually. If you chose to sell, there are a couple things you could do to proactively make the 1031 process much easier.

The first thing is to start looking and find an area or properties that you like before your property is even sold, and before your 45 day identification period begins. Take care of the hard job first. If finding a new replacement is more difficult then get your new property under contract first even before your old property closes. Naturally your property must sell before you can take title to the new one, but nothing prevents you from getting it under contract and make the process as smooth as possible. Use extended closing periods or additional earnest to buy more time for your old property to sell if you need.

The last option is what's called a reverse exchange. This is where your qualified intermediary takes title to the new property and holds it until you are able to close on your old property. Then after the old property is sold, you then take title to the replacement property. Reverse exchanges tend to be much more expensive than traditional 1031 exchange.

Although the timeline of a 1031 exchange can seem daunting. the reality is that well over 90% of all our clients exchanges end successfully. And I agree you'll probably feel a lot better having your rentals in your backyard.

Emily Gowen · Answer

Rene, I decided to sell at least one of the properties in the spring, to make my new housing payment out east more palatable. I might also subdivide the other property and sell half of it.

To answer Annamarie's awesome question, I would NOT buy a rental property in Portland now if I had the money... I would probably just stick it in the market. However, the house we will have left there does cash-flow and isn't stressful to rent, which is why I'm leaning toward keeping that one. I'm currently paying someone to research whether subdividing is worth it, and meeting with a realtor to see what the best strategy might be for selling.

Nathan Gesner · Answer

I only recommend investors sell when they can move the money to a better-performing investment or when the sale moves them closer to a specific goal. You don't appear to have a specific goal, so I wouldn't move the money unless you can put it in a better investment.

Portland is not a great investment area. You can earn strong appreciation but also lose a lot as the entire state becomes increasingly hostile to landlords. I've helped 6-7 different investors move money from Oregon to Wyoming in the last 15 years and they are all happy they made the move.

Consider finding a market that has a better long-term outlook, economically and legally.

Angela Venger · Answer

If I were in your shoes, I’d seriously consider selling the $650K property. The rental yield is pretty low compared to its value, and selling now while it’s in great condition could help you avoid the stress of managing it or dealing with wear and tear. The proceeds could be reinvested into something with better returns or even used to simplify your finances(Like Bettment still offer 4.75% for new customers, and you don't need to do anything!). For the $525K property, with the low mortgage rate(you will probably never get a such low rate), it might make sense to hold onto it for now, especially if you can still sell it as a primary residence within the next three years and avoid capital gains taxes.

Cory Carlson · Answer

@Emily Gowen These types of questions are precisely the focus of my firm. I think a return on invested equity analysis outlining a few scenarios with my models would answer your questions.

Holding properties in all cash early in an investment career is missing out of leverage returns. The denominator in the calculation is your capital/equity and with no debt the return on your existing equity is low. Even introducing a moderate amount of debt and purchasing another, OR exchanging out of the existing into a larger higher yielding property type with some debt. Let the math speak for what is best.

A 1031 exchange is nothing to be afraid of. I have done several multiple property 1031 exchanges throughout the state for my clients who are looking to scale and improve their investment portfolio.

Rene Hosman · Answer

Hi Emily! I'm so curious to know if you've made a decision on this? Are you going to keep or sell the property and what did you think about when you made that decision?

Annamarie Roger · Answer

It sounds like current challenges are:* how you currently feel today about maintaining property* how you currently feel today about that particular house that you lived in and made niceIt also sounds like there are a few logistical/ timing/financial challenges such as:* the logistics of a 1031 etc.* logistics of maintaining out-of-state property and tenants* having time to research enough about this while moving across the country to be confident in your decisions and planning* having time to research other opportunities, what could be done with the money if you soldReason I bring up the emotional stuff because yeah property is a hassle, but there may be another vision that lets you get everything or most of what you want, with a little bit less hassle, or hassle in a way that bothers you less. There are also ways to go about mindset shifts if that's a serious issue, but I don't know, it sounds like you've spent time with this property, you know all about it, and you have a bunch of other stuff going on in life.

For instance, you decide not to raise rent all the way to market rate....This is probably a good move if you hate maintenance calls and your tenants know to handle some maintenance themselves because they are getting a bargain deal. But it might be a good idea to raise rates each year or so by $50 to $100 because it can communicate that you aren't completely checked out, and you value your property, your time, your investment. If you're not leveraged anymore then I think the math checks out that your cash on cash return is less now, right? Tiny house thing doesn't make sense to me btw because tiny homes aren't really good for appreciation, maybe only for cash flow. So if you're not raising rents to at least $2700-$2800 if the value of the units are truly at $3000, then why get a tiny house.

Can you meet some property managers? If you can't trust anyone in Portland, then that's a whole issue... If your tenants are low-maintenance and low-turnover, maybe you don't need a property manager. Getting a calls a few times a year isn't a big deal. Getting a call weekly or even more often might be a problem if you're too busy, on top of managing taxes, general scheduled maintenance, etc.

"We couldn't help but improve the houses a ton, and part of us feels like it's a 'waste' to just have them rented, as it will put wear and tear on them until we do want to sell."
^ Do you feel like income you make on the units is based more off of square footage or location rather than add-ons you made for you while living there? Does this matter if you're not optimizing for building a ton of wealth to pass onto kids? Maybe selling is an idea worth considering if the house is a Mona Lisa and kind of beyond the general reality of typical tenant's maintenance obligation and ability, and they aren't paying for the additional quality.

If you really want to keep the home, you may find a way to be very happy about it with the right team, whether it be property management, electricians, contractors, or tenants. "Yay I get to keep my home that I fixed and loved because I have the team that lets me do that"... Get a new tenant if that's what it takes. As the owner you get to call the shots on a few things.

Will you potentially be more at peace if you sell and buy an investment property that you have never lived in personally? More work upfront, but maybe easier to scale later.

Lastly, if you didn't own your property today, but you had the money in cash, would you buy it with that money or would you buy something else? If you're comfortable with waiting 3 years, maybe that's not a bad decision since the building has a foundation that isn't going to fall apart, but yeah it's good that you are figuring out what you need to know to be ready when the time comes.

William Sing · Answer

Hi @Emily Gowen,

It sounds like you've really put a lot of thought into this, and you're weighing all the right factors. Given everything you've shared, one key thing to consider is flexibility. Selling now could free up your equity, giving you the option to diversify into other investments or markets that align better with your new life on the East Coast. It also offers a chance to shift into something more passive, reducing the hands-on management that seems to be more of a hassle now that you’ve moved.

That said, the rental income potential from your properties is worth noting, but there’s a limit to how much you can boost your cash flow, especially after already making significant upgrades. And, depending on where your properties are in Portland, the value might be near its peak—selling while they’re in top condition could be a smart move.

Ultimately, it comes down to what will give you the most peace of mind and the most flexibility for the future. Whether you sell and simplify or hold and continue to benefit from appreciation, it’s about aligning with your long-term goals and lifestyle. If you do decide to keep the rentals, let me know if you need any property management company recs!

When to sell vs hold rental properties that have appreciated?

When to sell vs hold rental properties that have appreciated?

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