Thinking about selling my Frisco Texas rental

[Ben H.]

Hello All It has been awhile since I have last posted. I have been taking my real estate classes and slated to take the state exam in January. The driver for me taking the courses is to educate myself about the business as well as being able to keep part of the sales commission when I do decide to sell. Which leads me into why I am posting this. I currently have 4 rental properties. Two of which I am full owner and the other two I am 50% owner. I financed all of them. I currently own a Townhome I purchased new and was my first home I bought back in 2002. When I moved out of it about 4 years ago, my wife and I purchased a larger home to start a family. The real estate market in Texas has gone gangbusters and the inventory of homes is starting to build. As of November 2016, we have 3 months of inventory. I believe last year we were at only one or two months of inventory. They teach you in RE class that 6 months of inventory is typically considered a balanced market. They also say that it does not stay there and will overshoot creating a buyers market. I have built enough equity in my townhome that if I sold it, I could pay off my primary residence which is very appealing to me for various reasons. If I did decide to sell, my thought was to wait until we get 5 months of inventory and put it on the market. As it is a starter home, I don't think it will go down much in value in Frisco. They are not building anything less than $350k. However, I think we may be through the bulk of the price increases and can't see it going up much more. Currently I would value the townhome around $250k. When I asked one of my professors when do you know when to sell, he said when you stop seeing cranes building. I don't know that I want to take that chance and lose out of paying off my mortgage if the property vales do go down. My question is would you sell and pay off your mortgage or ride out the next down cycle. Tia Ben

[Fred Heller]

I may be in the minority but my advice is to pay off your personal residence mortgage if you can. As someone who has gone through hard times, I can tell you from experience that there is nothing more terrifying than not knowing how you're going to pay the mortgage next month. Having the mortgage paid off gives you a security that makes going through those hard times less traumatic.

If you are seriously thinking about selling now is the time to do it. A three month supply of inventory is definitely a seller's market. Six months is considered a balanced market where neither the seller nor the buyer has a particular advantage.

As the seller you're in a better position when the market is tight. If you wait until the market is at five months, that means there's more inventory which means it will take longer to sell and you'll be under more pressure to take a lower offer. It's simple supply and demand.