Hold or Fold? Knowing when to sell

[Ericka G.]

For those who buy and hold - how do you decide when to fold (sell)? Here's the situation: Bought several OOS properties starting 2.5 years ago. We "chose" this location because my husband was assigned there for work and we realized there were many other commuters like him needing housing and luckily nice housing was dirt cheap there at that time. Our accidental niche has yielded financial freedom, class A tenants in class B/C areas, and great cash flow of ~ $1k per house after expenses (score!). we consistently have had a waiting list to get into our properties. We also have built an awesome team that makes self managing long distance manageable. Unfortunately, several others have recently discovered our niche - increasing competition, driving down prices, and shrinking cash flow (we're looking at $400-600 per house after expenses for Oct - our worst month ever). In the meantime, these are 1960s ranch houses that have increased ~ 60% in value since purchase BUT I'm expecting that we'll start having to replace roofs and furnaces in the next couple of years, cutting further into profits. The question: hold or fold? I'm considering folding b/c my husband has an ATL base starting in Nov so he no longer needs to commute to this location for work; AND it seems that our sweet spot niche is souring with a lot of cheaper competition... We did make one house a traditional rental with solid margins but the tenant quality isn't as good versus our niche and it has been a headache. I'm wondering if we should sell the 4 OOS houses in 2018 before capital expenditures start to hit and then roll the profits into a small apartment complex where we live. We have 4 units here and Ive found self managing locally much easier. On the flip side, we're still doing pretty well and it's likely that these houses will appreciate further as they are still well below the highs seen at the last peak. Is there a rule of thumb for how long to hold properties? Would you hold or fold?

[Kristina Heimstaedt]

Everyone is going to have a different opinion as to how to handle a situation. I can't necessarily speak for things in Atlanta. However, in California we have significant swings that you don't necessarily see in other states. As a result, this can dramatically impact your property taxes and eat into your bottom line. Because of this, we do the majority of our trading during the bottom of housing cycles. It also decreases agent fees and typically there are more opportunities. Yes, you may need to sell at a slightly discounted price, but there are a lot of expenses during transactions. If they're based on a sales price, if you can time things well, it can help manage your costs. 

All of this being said, that is our move as well: trade for more units and stay close.