With the Crazy Home Prices is it time to sell my Buy and Holds?

Question

With the prices of Homes in my area at very high prices, and most houses on the MLS under $100k going under contract in 15 days or less (some with multiple offers) I'm thinking it might make sense to start CASHing in on the gold rush. Some of my houses that I bought back in 2007/08 for $30-$40k are worth 80k - 90k right now according to a realtor that did a BPO on them. Now for the dilemma: If I sell these, where do I put all that $$$? Any thoughts?? Am I missing something and should just hold on to these?

Michael Barbari · Answer

@Jim Carson

I wouldn't. I would either cash out refi or get equity lines on them to buy more properties. Take advantage of the market. Good Luck!

Gilbert Dominguez · Answer

This may be a time for you to consider moving up in quality units. Sell your,"Pigs" as you call them then take your time about selecting better quality product. You will have a better chance of protecting your asset value and also cash flowing at a higher rate, maybe.

Worse case scenario is that your cash flow will remain the same but your appreciation factor may increase. This is what would make sense to me given your current asset class is low according to what you state. If you do not need the money then take the opportunity to move up in asset class. As to whether you can find good deals in a higher asset class that will still require time and effort to search and evaluate but moving up in class would be my criteria right now given your current situation.

Michael Barbari · Answer

@Jim Carson

Have patience. The right deal takes time. You don't have to pay full market value for a property. Buy one at a significant discount that needs some work. That's where you get the most bang for your buck. You are already cashflowing. Buy more property to add to that cashflow. At the end of the day it's all about the monthly positives.

Jim P. · Answer

I forgot to add:

Congrats on all your previous hard work to put you in the "predicament" that you're in....

Most people have only a little, and are trying to raise "seed" money--- you have plenty, and are looking at how to make your profits/equity work harder for you...

Certainly a nice problem to have.  Congrats!

Jimmy

Jim P. · Answer

@Jim Carson,

Numbers, Numbers, Numbers.

The house you mentioned- you have roughly $21,000 into it- getting $850 rents? What is that, 40% return on your investment (cash on cash)??? (I honestly don't know, too lazy and not enough info to even roughly calculate). I'm thinking its much, much higher than 40% though...

But, if you sell- you buy into a higher priced market----  Can you repeat that 40% with your profit from the sale? I would think no.  Even if you can- you are taking a chance...  You currently have a golden goose (geese?)...

As you said- if you did cash out--- is there a more productive use for that cash?  A very important question, including estimating what your new risks will be...

-Worst case (as others have mentioned)- why not Heloc or Cash-out-Refi (pick which is a better fit for your situation)--- and sit on that money/invest in something else(diversify for gains and safety)/hold it until your local market prices reset/use it to invest in a better market/better class of properties, etc.. etc... etc...

I know you just gave examples as did I--- but I think the takeaway is:

you have a good thing going currently---- make darn sure whatever you do ends up being better than what you have now (there's no point to voluntarily put yourself in a worse position...)

If rents are that good- Heloc and Cash out Refi seem to be the best use of your equity- if you run the numbers and are ok with your new numbers with the new Heloc or Refi...  But, these methods are (of course) more risky than just doing nothing more- and only keeping the good rent checks coming in...

my 2.5 cents (adjusted for inflation)...

Jimmy

Bruce Olsen · Answer

Start looking for a distressed apartment complex to turn around. It sounds like you need a new challenge.

Ken Bannister · Answer

If you don't need the cash, then why sell??  If you still have enough cash to continue investing then why sell??  Maybe if you think you can get a better return on your money, cash out refi so your rent still covers the refi carrying costs and put your cash where you can get a higher return?   People may be overpaying from an investor's stand point but from an emotional home buyer's perspective they my be thinking they're getting a deal.  I don't think the market is going to "tank" like is so fresh in an our memories, it may cool off for a minute but it will continue to go up if you look at a broader spectrum of history vs the last 8 years.

Another note.  A rising tide lifts all ships, won't higher home prices drag rental rates up and just provide you with more cash flow and higher ROI?

I'm a newbie, don't be too hard on me....

Jim C. · Answer

@Jason Mak- Thanks for commenting. Yes, I too would hate to sell high and then buy back higher! As far as a cash out refi, I don't need the $$$. I have enough on hand to buy several more should a good deal come along. Just confused as to what I can do if I sell some doors and what to do with the $$$? Stock Market? REITS?

Jason Mak · Answer

that's a tough call Jim, I recently sold a buy and hold and took a nice profit and then ended up paying market (overpaying) for another building to avoid the capital gain taxes.

Everyone may have their own market views  but a cash out refi to put some $$$ in your pocket and reward you for your hard work might just be the way to go.  Seems like you are patient and when you have the right project come along you will have the cash on hand to go after it.

Jim C. · Answer

@Michael Barbari- That's what I've been doing for the last 15 years... Buying properties that need lots of work, rehabbing them, and then renting them out. I've been looking and bidding on several other properties for a few months now, and they all seem to be selling for way more than they are worth (newbie investors paying way too much). That's why I thought that I could sell some of my PIGS (Ben's Term) and hold the cash for a few years and then re-invest it. My last property I bought was last year for $17,000. I put about $4,000 into it and it rents for $850 a month. The realtor says its worth about $80,000. Now that's crazy! Talk about appreciation!  That's a lot of months of rent to hold on to!

With the Crazy Home Prices is it time to sell my Buy and Holds?

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