Selling 4 unit cash flow for too little?

Question

Ok here’s a question.

I own a four unit building bringing in 2700/ month.

My expenses including vacancy/ maintenance are 1700/monthly, so it cash flows $1000 a month.

I’ve got a guy offering to by the property for 145k, and verbally I’ve already accepted. I’d only net 25k from the sell because of the financing I have on the property. I don’t really see another property where 25k makes $1000/month, and there are other reasons I want to get rid of this building. But my goal is more cash flow and this property is a good cash flow property for me. What should I do?

Caleb Heimsoth · Answer

@Johnoson Crutchfield. Well why do you want to sell?  Tenant headaches ?  I’m guessing the tenants aren’t great?

Johnoson Crutchfield · Answer

@Oleg Shalumov

Thanks for the responses everyone. Selling because the property caused me a lot of headaches last year. Turnover and maintenance was a bit high and it attracts a lower quality tenant. In retrospect I think I should have tried putting it with property management before selling it. But yes my plan as of now is to take the 25k and put into another property. In the market I invest in, multifamily is hard to come by but I can put this money into another property and do ok.

John

Oleg Shalumov · Answer

@Johnoson Crutchfield that makes sense to sell if it is creating lots of problems.

Khai Nguyen · Answer

Hi Johnson,

Great job on managing your real estate property with positive cash flow! When it comes to selling, always thinking about upgrading your size and cash flow.  There are some questions that you should ask yourself to help you making an inform decision:

1) Is there any way I can increase the cashflow in my current property?

2) Is the maximum cashflow I can make currently and the next 3-4 years?

3) Do I want to maximize profit while I am selling?

4) Am i doing everything I could to extract every value from this property?

If you answer "Yes" to the most of the questions above, then I believe it is time to move on. Now, it is to find another property with equal or greater cash flow compared to your previous property.

Think about selling the property in installment payments to increase selling price and saving taxes if you are okay with receiving partial payments over time OR selling the units as 1031 exchange to save the capital gains tax on the sale.

Keep the success going & you are doing a great job!

Anthony Greco · Answer

@Johnoson Crutchfield

Well I will just say it since I did not see it mentioned. It seems you would be planning to do a 1031 exchange into a new property correct? If not I would recommend looking into this before making the sale.

Dennis M. · Answer

Your getting 250$ a door .thats pretty darn good especially in a hot market in a popular city . I don’t know what more you could want in a rental . This sounds like a foolish idea based on emotions . Your getting a handsome return .  You have enough spread that you could find a decent property manager and still do okay without headaches or aggravation. I would reconsider the sale if it were me

Will Gates · Answer

Maybe there are huge capex items that are in need of being addressed and @Johnoson Crutchfield doesn't want to deal with them? I mean, the cash flow looks great, but ultimately, if you're wanting to get out of the property and you have a buyer lined up... then you may want to consider 1031 exchange?

Oleg Shalumov · Answer

@Johnoson Crutchfield why are you selling? Do you have a property that would cash flow better then this property?

Duane Gunkler · Answer

@Johnoson Crutchfield At a glance, it seems odd to sell it based on those numbers?  Without knowing what the other issues are, it's hard to say if it is the "right" move, but mathematically, I would think it would be hard to cash flow anything higher with $25K.  You're getting nearly 50% return on that money a year.  Here in Atlanta, I would kill to find a property that brings in $2700/mo for $145K!  I am looking at quads myself and the ones I am looking at bring in about $3000/mo, but cost nearly $400K.

Selling 4 unit cash flow for too little?

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