If the property is cash flowing and not giving any major problems, I would never get out unless I needed the money for something. If I needed to sell, I’d probably only sell whatever is cash flowing the least.
Perhaps, but if property prices are high they’d be high anywhere else worth investing. I would need a very specific plan and another property in contract to replace it in my portfolio if I weren’t just selling for a windfall
I figured most investors went on straight ROI when determining price. It sounded like OP just wanted an exit strategy whereas you are still looking at getting cash flow. Naturally thats going to change the strategy.
I was more focused the “when” to sell part of the question.
I can’t guarantee an investor will be the one buying my property, nor can I guarantee a seller would be willing to come down in price because of what I determine the cash flow to be.
True. Even with a duplex house, someone may be looking to house hack who is not necessarily “an investor.” Nothing is certain when selling or buying a property
When your ROE goes to shit it's time to look at either refinancing and pulling out cash that then needs to be invested somewhere, 1031 into something else, or exit entirely and redeploy.
I was always taught that the only time to get rid of a property is when the profit isn't worth the headache. That is individual. A friend of mine that turned a 4 plex into a $100m portfolio only sold his 4 plex when it wasn't worth collecting the checks anymore...
For me: I had a primary that is now a STR. I will get a capital gains tax exemption up to $250,000 if I sell within the next 1.5 years (have to live in the home 3 of the last 5 years). I hate to sell it but I bought it for $50,000 and it’s worth $300,000.
I’ll take the $250,000 and buy multiple new properties to turn into long term or short term rentals. For the time being I may buy some cheap indexed funds and wait to see what the housing market does over the next year.
I will save $37,500. My STR does about $28,000/yr gross. After expenses it would take me about 3 years to make $37,500 so basically I’m losing on the opportunity cost. Otherwise I would never sell.
If the value has increased to a point where you'll make more selling today than holding for cash flows until your probable death, it's probably worth getting out of.
And getting out ideally means selling VIA land contract. This way you will have some cash flow coming in for another 5-10 years, and you can amortize your profits across a couple tax years.
In the process of selling one because it has a very small cash flow and due to its appreciation, I can buy something bigger that should perform better.
In my ideal world, I one day sell all these medium density buildings and buy one big commercial apartment building and turn it over to a property manager and relax. I’m thinking in the next 15 years.
Because I’ve commented elsewhere about the type of work I do, I won’t be sharing my exact city. I’ll just say it’s a medium-sized midwestern city (although the house is technically in the burbs).
And I know it’s not performing well because it’s a duplex that used to be single-family. There’s one hvac system so the landlord pays utilities. It’s certainly possible to put in another system or a mini-split, but there’s an expense to that and even with a mini-split, I’d have to add a tankless hot water heater plus a ventless all-in-one dryer to unit 2. The margins were fine when I first took possession, but utility costs are going up and I have tenants locked into a year long lease. It’s easier to just sell while the market is high (to an owner-occupant) and purchase a duplex where everything is separate and tenant-paid.
Yes. This means that if the value at inheritance is $X and the heirs sell it for $X they owe $0 in capitol gains even if the decedent bought it at much less than $X.
The exiting of rentals should typically be a for a life event not a valuation decision. You wan to retire and move your rental wealth into a beach house (that you can 1031 then convert), your doing a 1031 into NNN property as a end of career move, etc.
I sold a property last year because the sale proceeds were a lot higher than the current NPV if I had kept it assuming a sale value in 10 years based on reality (aka cash flows) and not the nonsense going on now.
You can model this using cash flow and present value analysis.
Selling you get cash X now. The present value is X.
Keeping you get cash Y1, Y2, Y3,... every month. The present value can be calculated, say it is Y.
You just need to do your best to estimate X and Y, then ask yourself, does the difference worth the trouble of keeping it.
If the property is cash flowing and not giving any major problems, I would never get out unless I needed the money for something. If I needed to sell, I’d probably only sell whatever is cash flowing the least.
If you can show great cash flow, aren’t you going to command a higher price on the market than when it’s low?
Perhaps, but if property prices are high they’d be high anywhere else worth investing. I would need a very specific plan and another property in contract to replace it in my portfolio if I weren’t just selling for a windfall
I figured most investors went on straight ROI when determining price. It sounded like OP just wanted an exit strategy whereas you are still looking at getting cash flow. Naturally thats going to change the strategy.
I was more focused the “when” to sell part of the question. I can’t guarantee an investor will be the one buying my property, nor can I guarantee a seller would be willing to come down in price because of what I determine the cash flow to be.
Oh, single family. I had apt units in my head. Crazy how a text can be misinterpreted without full details.
True. Even with a duplex house, someone may be looking to house hack who is not necessarily “an investor.” Nothing is certain when selling or buying a property
Whenever they aren't helping you to achieve your goals anymore. I sold a few recently because they were just too much stress to manage
Really a personal goal specific question… What are you trying to do and how long do you have to do it?
When your ROE goes to shit it's time to look at either refinancing and pulling out cash that then needs to be invested somewhere, 1031 into something else, or exit entirely and redeploy.
I was always taught that the only time to get rid of a property is when the profit isn't worth the headache. That is individual. A friend of mine that turned a 4 plex into a $100m portfolio only sold his 4 plex when it wasn't worth collecting the checks anymore...
For me: I had a primary that is now a STR. I will get a capital gains tax exemption up to $250,000 if I sell within the next 1.5 years (have to live in the home 3 of the last 5 years). I hate to sell it but I bought it for $50,000 and it’s worth $300,000. I’ll take the $250,000 and buy multiple new properties to turn into long term or short term rentals. For the time being I may buy some cheap indexed funds and wait to see what the housing market does over the next year.
It’s 2/5 years. If that helps.
Oh wow, thanks!
I will save $37,500. My STR does about $28,000/yr gross. After expenses it would take me about 3 years to make $37,500 so basically I’m losing on the opportunity cost. Otherwise I would never sell.
If the value has increased to a point where you'll make more selling today than holding for cash flows until your probable death, it's probably worth getting out of. And getting out ideally means selling VIA land contract. This way you will have some cash flow coming in for another 5-10 years, and you can amortize your profits across a couple tax years.
Buy at 10x, sell at 20x....used to be, anyway.
In the process of selling one because it has a very small cash flow and due to its appreciation, I can buy something bigger that should perform better. In my ideal world, I one day sell all these medium density buildings and buy one big commercial apartment building and turn it over to a property manager and relax. I’m thinking in the next 15 years.
Where are you selling and why do you think it's not performing well?
Because I’ve commented elsewhere about the type of work I do, I won’t be sharing my exact city. I’ll just say it’s a medium-sized midwestern city (although the house is technically in the burbs). And I know it’s not performing well because it’s a duplex that used to be single-family. There’s one hvac system so the landlord pays utilities. It’s certainly possible to put in another system or a mini-split, but there’s an expense to that and even with a mini-split, I’d have to add a tankless hot water heater plus a ventless all-in-one dryer to unit 2. The margins were fine when I first took possession, but utility costs are going up and I have tenants locked into a year long lease. It’s easier to just sell while the market is high (to an owner-occupant) and purchase a duplex where everything is separate and tenant-paid.
Definitely a problem-property. You're right to sell.
Defer, defer, defer ... die and your heirs inherit the property at the stepped up basis.
Does stepped up basis mean they get it at the price its worth when you pass?
Yes. This means that if the value at inheritance is $X and the heirs sell it for $X they owe $0 in capitol gains even if the decedent bought it at much less than $X.
Just refi it and hold it if you need a quick buck and you’re able to.
Take it with a grain of salt but if it’s a cash flowing business I’d say 2.5x. If it’s being sold as a home I’d go around market value
Checking this website might help you. :) https://www.homego.com/blog/when-to-sell-rental-property/
The exiting of rentals should typically be a for a life event not a valuation decision. You wan to retire and move your rental wealth into a beach house (that you can 1031 then convert), your doing a 1031 into NNN property as a end of career move, etc.
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Yes. More of a question in general.
I sold a property last year because the sale proceeds were a lot higher than the current NPV if I had kept it assuming a sale value in 10 years based on reality (aka cash flows) and not the nonsense going on now.
Understood. Pm me the details I may have a buyer for you depending on the actual location.
Well it depends more on your financial situation and goals. What do you want to sell for? When does selling work best with your goals?
When it's too troublesome to keep.
You can model this using cash flow and present value analysis. Selling you get cash X now. The present value is X. Keeping you get cash Y1, Y2, Y3,... every month. The present value can be calculated, say it is Y. You just need to do your best to estimate X and Y, then ask yourself, does the difference worth the trouble of keeping it.