Optimal Time to Sell?

[Max Briggs]

I have been running some financial analysis on some buy and hold scenarios for various properties and I noticed something that seemed strange to me.  Lets say that I have a property that returns 15% cash on cash and I financed it, so I get an additional benefit from loan paydown.  Then my total return in the early years is close to 18%, which is great.  However, even if I assume that the cash on cash return is reinvested at some rate (say the interest rate for the mortgage or the historical return of the S&P 500) the rate of return diminishes over time, eventually reaching whatever the reinvestment rate is.  I know that some people will say that you should reinvest in another property that cash flows 15%, then this isn't an issue, and that point may be valid, but that is not the point of my post.  

An alternative way of looking at the analysis is like this:  

Each year you have the option to either sell the house and reinvest the equity or take the cash+equity return.  Dividing the net income + Marginal equity by the amount you would profit from selling the house.  In the early years this number is substantial, because you don't have very much equity in the house and the cash on cash return is high.   However, as you continue to build equity the denominator gets bigger faster than the numerator and the number goes down, eventually reaching the Cap Rate.  Since typically the cap rate is lower than the rate you would get from financing a new property and could even be lower than other investment options, it looks to me that sometimes it makes sense to sell the house and reinvest the money even if it is a healthy cash flowing property.

I bring this all up to ask a general question, is this all well known stuff and am I just missing the websites and blog posts dedicated to the strategy of selling investment properties? Most of the posts I read on selling basically say that selling is something that should be done only with failing properties, or properties that have appreciated substantially, or if people are looking to become more hands off. According to what I'm seeing it looks like there might simply be an optimal time to sell even a healthy house, simply because your marginal ROI is diminishing over time.

I look forward to hearing your opinions on this