Should I sell or should I go now?

Question

That title is a reference to old punk rock song.

I’ve had an investment friend suggest I sell my real estate holdings which is 5 singles family homes.
He made a suggestion because of rising interest rates and home values being historically high.

a snap shot is as follows:

I have 100% occupancy. My positive cash flow is 3K a month as 3 of 5 are paid off. Before taxes and mtc.

If I sell - how can I grow my money after?

What rate will my capital gains taxes be?

Many questions….

Thanks in advance.

Scott Johnson · Answer

Up to you, @Martin Nowak.

When I buy rentals, it's for the long-term benefits. Cash flow, loan paydown, and depreciation. I don't pay a lot of attention to appreciation. That's just icing on the cake.

If you have a place to park that capital that'll give you good returns then go for it, but 3K is more than most people make in a month here in America. Play Robert & Kim's Cashflow Board Game and reflection before you make any decisions.

Hope this helps!

Zack Berridge · Answer

@Martin Nowak if you sell there will be trouble…. If you stay there will be double 🤘

Chris Levarek · Answer

@Martin Nowak If you sell their will be trouble, if you go their will be double. :)

Market isn't going anywhere for 2-3 years in my opinion, local market dependent of course. Fact home ownership is on the decline while rental growth is on the incline in general. Rental growth means good for rental properties.

This being said, do the numbers! Return on Equity. If your equity could make more elsewhere, move it. If you are satisfied with your return, don't move it. Take the emotion out of the equation. ROE = cashflow / Equity in the property.

And sometimes, it's about quality of life, so returns aren't everything if you enjoy the time or role you are currently playing with said properties...

Jake Handler · Answer

Look into the details of a 1031 exchange.  I personally would never sell these assets unless 1031 was the plan.

Dave Foster · Answer

@Martin Nowak, Sound advice by @Jake Handler and @Joshua Janus.  Ultimately though it comes down to the existing property.  What's the "why" for selling it.  Cap ex looming?  Under performing? want to change classes or locations?  bored?  All are reasons to sell and 1031.  Just know the why of why you're selling.  So you can identify the best "what" for your next investment.

Joshua Janus · Answer

I would talk to a realtor or group of investors to get an idea of what your portfolio is worth as a whole. Then go out and shop for a larger apartment complex where the numbers make sense. Coordinate with a 1031 tax exchange expert throughout the process so you can defer your capital gains, buy more doors, spread your risk and increase your cash flow.

Account Closed · Answer

I'm a novice of renting, but I do know cash-out refinances are very popular if you would like to keep the homes. Those homes that are paid off can get you a lot of equity. May hurt the cash-flow you have, but can put money in your pocket while still being able to keep them. Use that money to buy more homes, renovate, or invest elsewhere. I'm also not very well-versed in the 1031 passthrough tax, but that would be your other option if you want to sell and buy more/better properties, rather than keeping the ones you have.

Andrew Hogan · Answer

Congrats on the success @Martin NowakYou could sell those, make a great return on your original investment, and spread the proceeds across a few hundred to thousand multifamily doors as a limited partner with an experienced operator tax efficiently w/out a 1031.

Jonathan R McLaughlin · Answer

3K a month "before taxes and maintenance", no mention of capex reserves and with 3 of 5 having no debt? That doesn't seem like an exciting return depending on how much cash you had to lay out. Not sure of your price point?

I would either take advantage of conservative refinances for still historically low interest rates for long term fixed debt (3.5 to 4.25 over 30 years) or sell and exchange depending on the numbers.

Michael Blum · Answer

@Martin Nowak

I think there is some great advice here. Really what it comes down to is you understanding your “why.” Are you looking to increase your passive income? Are you fine where you are at? Are any of the properties less than desirable that you could 1031 into a better quality property? Yes, you could always try and leverage up into “bigger & better.” However, I would suggest not letting the desire of “more” for “more’s sake” be the reason for selling or going bigger. If that is something you would like to do than great, but it sounds like what you have is working well. If it isn’t broke, there is no need to fix it.

Should I sell or should I go now?

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