Rent it or sell it: how do you walk owners through that fork?

Question

Every rental owner eventually hits the same fork: rent it or sell it. After 35 years of investing, here is the honest way I think through it, and I would like to hear how others weigh it.

Lean toward selling if the numbers do not cash flow after honest expenses, the market has peaked for your block, or the property no longer fits your life.

Lean toward renting if it cash flows, you can hold through a cycle, and you want the long term appreciation and tax advantages of keeping the asset.

The mistake I see most: owners sell a perfectly good cash flowing rental because managing it became a headache, not because the investment stopped working. That is a management problem, not an asset problem, and it is usually fixable.

Curious how the rest of you handle this. What is the deciding factor that tips you from rent to sell?

Igor Ganapolsky · Answer

ken's point about the spreadsheet is smart. for me the biggest factor is honestly just what i want my life to look like in 5 years. if i'm tired of the headaches and want to simplify, selling makes sense even if the property is technically cash flowing. the tax hit is real but so is burnout.

the other thing i think about is opportunity cost. if i sell this rental for $300k and it's sitting in a brokerage account earning 7%, that's $21k a year passive. if the rental only cash flows $15k after all the real expenses (not just the mortgage and taxes, but the capex reserves, the vacancy months, the management time), then selling actually puts me ahead financially AND gives me my time back.

but if the property is in a strong appreciation market and the cash flow covers everything including a healthy reserve, i'd lean toward keeping it. the depreciation recapture and capital gains taxes are brutal when you sell, and you lose that compounding.

mike's right that most people sell for the wrong reasons. they're frustrated with a bad tenant or a leaky roof and make an emotional decision. i always try to run the numbers cold first, then ask myself if i'd buy this same property today at the current price. if the answer is no, that's usually the sign to sell.

Ken M. · Answer

Are you taking into consideration the IRS taxes, capital expenses and if you have children the inheritance issues. I wrote a speadsheet that compares those options rather quickly by individual property. That gives me a good foundation for plannning the exit strategy.

Rent it or sell it: how do you walk owners through that fork?

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