Right time to walk away?

Question

Trying to figure out if it’s the right time to cash out and walk away. I’m still in the capital gains exempt territory but only until the end of the year. I have a 3-family purchased for 575 in 2017 and is worth about 1mil now. On one hand I love the idea of not worrying about the property, on another I get the long term move of keeping it, just not sure which is right for me, how did you make the decision? I’m a high earner if that makes a difference, I don’t NEED the rental income.

Jay Hinrichs · Answer

do you mean you lived in one of the units for 2 of the last 5 years so you get to get the 250k or 500k tax free..  I love that play and thinks its one of the best tax advantages we have as Americans..  However I think I read somewhere and I could definitely be wrong that you only get to get the tax free on the one unit you lived in.. and you do have recapture to think about as well..  but sometimes paying tax at cap gains is OK if your going to buy a buisness that far out perfroms rental income and thats not all that hard to do frankly.  COC rental income is one of the lowest returns U can get for someone who wants to be active in their business..  500k business thats successful  IE 500k in cash and some debt should net you easy 100k to 200k a year if not more.

Lien Vuong · Answer

You dont need the income but your $ can probably go a longer way if you either cash-out refi on that property to get more liquidity and create more passive income OR to sell it and move the funds over to another much larger deal. The benefit of buying more (even though you dont need the extra income) is actually it reduces your tax liability with cost seg, expense deductions, depreciation, etc which is a larger savings than just some $ from net profit at month end.

Patrick Drury · Answer

@Matthew CatanzaritiIf you are looking to cash out from real estate and walk away I would recommend you do it now while the market is high. Inventory is low and prices are at record highs.

Rodney Sums · Answer

Heres my two cents:

1. consult a CPA and determine how much of the cash you could keep without paying capital gains.

2. If there are some capital gains that would have to be paid, learn if a 1031 exchange on the part that you'd owe capital gains on is an option to avoid taxes.  This is contingent upon another point to follow

3. The sentiment of your original post suggests you value but don't need the rental income, you're unsure about being a landlord again (refers back to #2), you have a business venture you could use capital for but you're concerned there's future appreciation you'd miss out on.   What's important to you and what do you WANT to do?

4. How many years would it take your current annual net cash flow to equal the amount of after-cost-of-sale equity you're sitting on?

Gavin Larnard · Answer

Are you looking to exit the real estate investment game completely?

Gavin Larnard · Answer

Lots of great advice on this forum, right now the market especially in Massachusetts is getting very stagnant. If you have other investment opportunities that interest you more/ get you more fired up it might make sense to sell. Don't know if cash out refinancing would currently make sense with the interest rates. Best of luck!!

Andrew Hogan · Answer

@Matthew Catanzariti RETURN on EQUITY.

Thus is the metric that many use to decide when to walk. Over time your return on equity diminishes as your assets appreciate and its time to sell/reinvest and make sure your capital is working as hard as it should be for you and yielding the highest risk-adjusted return possible.

Eliott Elias · Answer

With that much equity in the property you could make it work a lot harder somewhere else. Assuming it's not going to appreciate in the coming years the same way it has the past few years, put the cash in a value add or large multifamily. If you want to keep it make sure you can somehow make it cash flow after the refi. Maybe airbnb it or add another unit.

Cody Mitchell · Answer

That would be my first piece of advice, is to decide whether you want to stick with real estate investing or cash out. If you do decide to continue investing, I would then make a definite goal of what you want in the long term and work backwards. Whether you sell or not, seems like you have great options.

Right time to walk away?

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