Would you sell good cash flowing properties to buy more?

Question

My wife and I have 2 properties near Salt Lake City that cash flow well but are causing headaches. Specifically we're having trouble getting support from our property manager to execute repairs and upgrades that the city is requiring. We've tried contacting local companies directly but haven't been able to get much interest or response. The problems are to the point where the city is starting to hit us with fines.

I believe we could sell the two properties and walk away with ~$75,000 that we would re-invest again locally and believe we could get better properties or more properties than what we have now but individually would probably not cash flow as well.

The question is, would you sell property that is cash flowing well but is problematic to buy more properties that individually wouldn't cash flow as well but you could manage yourself?

Martin Carstens · Answer

Micah,I spend eight months a year at sea, and have 12 rental homes in the SLC area. I know just what you mean about the fines! They dont mess around! My answer, a great PM, can take care of everything. I could not do it with my absence. Try Rachel Vaenuku at V7 realestate services. She is a joy to work worth!Best of luck!

Londell Reedman · Answer

never sell properties, its a little harder to find cash cash flowing rentals

Jackson Pontsler · Answer

@Micah Starbuck sorry to hear about that problem. If you are intent on selling then 1031 exchange it to save you on taxes. I wish you the best of luck with you decision.

Thomas S. · Answer

I would definatly sell for all the reasons you point out especially the option to self manage. I would however not sell until all repairs are completed and the city is satisfied.Unlike many I do not hold to the theory that once you own a property you should hold it till you die. This is a business and you must make wise business decisions. Holding for the sake of holding is irrational when there are many obvious reasons to sell. Yes you could bust your hump making this one work but the problems are not going to majicly disappear as long as you rely on a PM. You could go through several more before you find the right one when selling, for many reasons, is a better solution. Find good local cash flow properties and move your investment to gain the advantage of self managing.

Jaiden Olsen · Answer

@Micah Starbuck, If you decide to sell, I'm interested in buying. PM me if you're interested.It sounds to me like you need a new property manager! It is all about the numbers. In determining when to sell, I think you've got to look at a metric called Return on Equity (ROE). Calculated as Annual Cashflow/Estimated Equity in the property. I'm sure you know how to calculate annual cashflow (gross operating income-operating expenses-annual debt service). Estimated Equity is calculated as Estimated Market Value minus remaining mortgage balance. For me, if my ROE is below 3%-4%, I think it is time consider selling and leverage my capital a little more effectively. Some people are much more comfortable with ROE closer to 1%-2%, but it totally depends on the individual.Best of Luck!

David Friedman · Answer

It sounds like you need a new property manager or some better boots on the ground to help with your rentals. If they cannot handle the repairs that the city is requiring, you could probably call a few contractors yourself using Yelp or other websites and see if they can do the work.I had a landscaper do a job in San Bernardino that I never personally saw in person. He took pictures along the way and provided many references to me before I gave him the deposit to start the work. You have options. Hang in a little longer.

Micah Starbuck · Answer

@Johnny Pineyro, I don't need the equity unless we're looking to relocate our rentals. We're actually actively looking where we are now. It's just a matter of whether we want to keep these two while we continue to expand. Self-management isn't really an option unfortunately. As far as extensions go, we're actually OK now that winter is there. The fines are in regard to landscaping which isn't an issue once it gets cold there.@Russell Lavoie, for sure we'd be doing an exchange. Just a matter of whether we pull the trigger or not.@Jackson Pontsler, since you're in SLC, do you happen to know a landscaper that works in Ogden? Maybe you can give me a track on someone who will work with an out of town customer.@Londell Reedman, that's the rule I keep coming back to. We could sell but we'd be essentially hitting the reset button and would take a few years to get back to where we are (but we more properties than we have now).@Martin Carstens, thank you for that recommendation. Our properties are actually in Ogden but we'll reach out and see if they service our area. A more robust PM company would go a long way I think.@Bryan Devitt, the tough part is they're really good at placing tenants and responding to small problems (maintenance items, tenant complaints, etc). Where they're lacking for us is taking on larger projects. But you are right; a new PM should be top of our list.

Bryan Devitt · Answer

Have you tried to find a new PM that actually does their job?

Russell Lavoie · Answer

@Micah Starbuck Personally I would not u less I was 1039 exchanging into a single property that was In an area were I have a competitive advantage ( Solid PM) There has to be someone on here who can help or knows someone who can point you In the right dIrection, or a great area to start looking in Selling a property comes with closing cost, taxes. If you wanted to invest in multiple new properties that are smaller also has its own closing cost and CAPEX for every property. Then the properties in a different location to manage instead of them all being under one roof.

Johnny Pineyro · Answer

Can you pull equity out instead while you looking for a proper PM? Could you self-manage? Can you negotiate an extension of time to avoid city fines?