Buy & Hold Exit Strategy

[Johnson H.]

As someone who dabbles in day trading once in awhile, I always set my exit strategy before going into a position, taking gains or losses at predetermined prices without (much) emotion in order to profit or cut my losses early.

As a young real estate investor with a full time job, I have been acquiring SFH rentals at 60% to 70% discounts from 2006 highs in the Phoenix market. I continue to save, look for further deals and even jumped into having private lenders to fund future deals.

However, I am having trouble determining my exit strategy and a situation popped up into my head. Let's say its now 20 years into the future. Each home worth $300k in 2006, I purchased for $100k in 2011. Now the price of each home is worth $200k. So the homes have appreciated for double but still 33% off it's highs so I don't think its unrealistic for this to happen. After all costs, let's also say I can profit $80k for each home if I sell or I can continue to to reap $300 to $400 a month in cash flow. Taking the high end number, that is $4,800 a year.

After some thought, I would sell them all, try to get into a 1031 exchange for a large distressed apartment building. If I can't find one, I'll just eat the taxes and save my money for another downturn and buy up real estate again during that time.

What would you do? Would you just keep all of the rentals? Or sell it all? Or do something different?

[Steve L.]

The two main factors I will take into consideration on when to sell:

1. What the experts think the market is going to do appreciation wise. There are a couple sources I trust but I don't want to hold on right to the top. Too risky.

2. My return on equity. Since I already buy properties at a pretty big discount my return on equity is already low. I can likely 1031 exchange my portfolio into some pretty conservative investments and be better off.