Right time to sell?

Question

I bought a duplex in the general Portland Area back in 2015 and it has appreciated due to market + forced appreciation through a remodel by over $200,000 in the last 3 years. My income is $1600 per month after my mortgage payment + fees.

Would now be a good time to sell or just hold it? Im just wondering if I should take the profit while it's there and significant. It'd take about 10 years of 100% occupancy to gain the same profit from renting.

Any thoughts or ideas would be appreciated!

Michael Volek · Answer

Just my two cents, I would do a cash-out refinance. The money does nothing sitting in the form of equity. The reasons why I'd do a cash out refinance are:

1) you keep renting out the property for a monthly cash flow,

2) you can invest the money into less expensive markets for additional gains.

The 1031 exchange route is also pretty enticing since you can defer the taxes, but since you have owned the duplex for longer than 2 years, you wont have to worry about the big bad capital gains tax.

Honestly, as I'm sure you're aware, it depends on what you're comfy with. As Mathew stated, you're current cash flow should be really nice, it just isn't doing as much as it could for you.

I hope to hear what you decide. Good luck.

Mathew Wray · Answer

I don't mind speculating on what's going to happen, but don't just take my word for it. I'm just one guy and I'm definitely not the smartest person in the room. None of us know what's going to happen, and if someone does know, they're quietly working on how to profit it from it like Michael Burry from the Big Short fame.

Here's what I can pretty confidently say though, the market is going to go up. Then down. Then back up again. I firmly, 100% believe in the long-term viability of real-estate or I wouldn't be in the market at all. I believe real estate is the bedrock principle that supports the economic engine of America. But that's not your question...what do I think is going to happen in Portland? I think people are going to continue to move here. I think values are going to continue to rise (and rents along with them) and I don't see any signs of capacity/supply coming online to alleviate the shortages. There may be rent-control and more ridiculous measures that limit our business-but make no mistake, those measures won't build more housing stock. Although prices are outrageous to us, we're still the most affordable big-city on the west coast and people will continue to flock here for that reason among others.

It's all speculation, but if long-term is your vision, then I'd stick with the property. Use that great cashflow and other income to purchase properties in other markets, but leave this one alone. If you're okay with more risk, then sell it and put that money into other markets now. But, if you're waiting for the market to do something, you're going to be stuck on the sidelines. There's deals and money to be made in every market!

Mathew

Chase Wippert · Answer

Sergey,

I think there is an argument for both sides here! Fortunately your in a great spot and bought at a time when the duplex can cash flow like it is with rising rents.. With that being said, it may depend on what your goals are? If you plan on being a more active investor than you may want to sell the duplex and 1031 the proceeds into more deals. If you are preparing for the long game and would like the cash flow to continue for years to come than holding on to it will have advantages as well.

Cheers!

Michael Volek · Answer

Account Closed it's my pleasure. I agree a home equity loan will also be a nice option and a valuable tool in your arsenal. I hope to find out what you eventually decide. Good luck and take care.

Account Closed · Answer

Michael and Mathew,

Thanks for your responses! The more that I think about it, the more likely I will go with either a cash-out refinance or a home equity loan to use for my next investment, depending on the amount of cash I will need. I really like this duplex and I've personally put a lot of time and effort into the remodel. It's in a great location and it should serve great as a long term investment with the cash flow it's producing.

Thanks for your responses. It's always good to hear advice and get ideas from other fellow investors.

-Sergey Kuzmin

Account Closed · Answer

Chase and Mathew,

Thanks for the quick responses! Yes the argument for both sides is very real and makes for a hard decision.

Honestly, I'd love to hang onto this duplex as a long term investment. That was the goal from the very beginning. But if I were to sell, I'd definitely use the money to re-invest in a 1031 for more rental properties, just not in the Portland area as I believe it's now over priced, but in other states.

The problem that I'm wrestling in my head with is if this hot Portland market currently is in a bubble or not. If rent and property values stay the same or slightly rise for the next few years, I would not sell it. But I feel like the hot market bubble may burst soon and home values and rent may decrease and I'll lose out on years worth of profits that I could easily take right now. Losing out on potential profits is my biggest fear and could become a big regret.

Looking ahead, what are your personal opinions on the Portland market for the next few years? Does it keep heating up or cooling down?

Mathew Wray · Answer

Hey Sergey, welcome to BP!

Congrats on buying at the right time and forcing appreciation! I think the real answer to your question is the one you don't want to hear: "it depends." I say that with a smile because I feel you. I've got a duplex from 2010 in a hot Portland area that I'm constantly wrestling with the idea of selling.

In order to give you an actual answer, it would be helpful to know what your goals are? If you sold it, what would you do with the money? Where in the area is it? Could you refi or lend against it and get access to some cash without losing the property? There are some specifics missing that would be helpful.

To me, a good place to start, after defining your goals, is to ask yourself how you'd deploy that 200k? If the answer is just, buy another property in the Portland area, I'd say hang on to what you have. If the answer is one of the many that will generate further wealth creation, then I'd say pull the trigger and sell it now. Or, like I said above, split the difference, borrow against the property, and reinvest that money while keeping the underlying asset.

Do you have more specifics? Or, if you have questions, just ask!

Thanks,

Mathew

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