Advice on Selling Investment Property vs Not??

Question

Hi there. I USED to be a decently successful investor (until 4 internationally adopted kids turned my world inside out!!). However, I have not been 'active' in almost a decade and am not only unsure of myself, but also I know the environment (and therefore 'rules', if you will) have changed significantly. I have a question related to one of the 2 investment properties left in our portfolio....here are what I would consider the relevant background details:

- We are a family of 6 (me-46, husband-55, 4 tween/young teens) and we lost everything in 2008-10 including all we had for our retirement plans
- We currently own 2 4-plexes; 13 yrs left on mortgages; very minimal cash flow now, but no out of pocket expenses either
- Our plan has been to keep those 2 4-plexes knowing than when mortgages are paid off, the cash flow will at least keep us out of working at Walmart as senior citizens!
- Our plan is to purchase additional multi-family investment properties as soon as we are able to expand our portfolio as that will be our only shot at a decent retirement....based on our ages, however, that will have to be done quickly and with 10 year loans which means we will need LOTS of money for down-payments....I homeschool our 4 kids (3 with special learning issues) and my husband is trying to build a new business after the one he owned/ran for over 12 years died a couple of years ago....could easily be 5 more months before we see any income so at the moment, conventional financing is not going to happen for us

Here is my question: I was recently contacted by an investor who wants to purchase one of the 4-plexes. SHOULD WE SELL? My fear in doing so is that getting into something now with as much equity or at today's values will NOT be easy (probably worth about $600k, mortgage at about $200k) and we will end up selling off half of what MIGHT be our entire retirement!
The reason I am considering it however, is that I am wondering if we could (despite no income at the moment and therefore no option for traditional financing) leverage the proceeds into something bigger/more units, that would be better for us given our circumstances??

I have heard SO MANY TIMES that everyone who sells regrets it later and I feel like I am trying to get back in the game SO late in life in terms of the number of years left before we will want/need to have a retirement in place....and just not sure I am even thinking about this right or completely.

Any insight or respectful advice would be much appreciated and welcomed. Thanks so much in advance.

Jaysen Medhurst · Answer

As far as finding off-market properties, you can pay for list from ListSource or a similar service. I have identified properties using town records. I look for properties that have been owned long enough to:

• Have recovered from any potential loss during the recession.
• Are likely owned free-and-clear or close. This can be confirmed with other public records.
• Have little depreciation left to realize.

Laura MacDonald · Answer

@Jaysen Medhurst Thank you very much for your reply....you are absolutely right that I am currently operating from a mindset of fear....that is exactly what I am trying to over-come as I work to re-enter the real estate investing world.  I appreciate your encouragement as well as the suggestion to look into commercial lenders and/or owner financing options.  Husband is definitely trying to get a W2 job, as well as working to get his new business launched (having both work out would be a problem I would warmly welcome!!).

Back 'in the day' when I was heavily involved in investing, I used a combination of resources like free tax records/county maps/P&Z data/etc to locate off-market properties....are there any tips or suggestions you might be able to share as to how things are done these days in terms of locating off-market deals that might consider owner-financing?

Thanks again for taking the time to respond.

Laura

Jaysen Medhurst · Answer

@Laura MacDonald, you have 10-20 years before retirement, so plenty of time to build a solid foundation. I think your biggest mistake would be to let fear keep you from making prudent decisions...and that's a little bit of what I'm reading in your post.

The two properties you currently have aren't performing, but do have equity (about $800k, if I understand correctly). Right now you're getting very little Return on Equity (ROE) and that needs to change.

You wrote" I have heard SO MANY TIMES that everyone who sells regrets it later..." That' now what I hear. What I hear is investors regret not scaling sooner and faster. You have experience in REI, you're not just getting your feed wet. You won't regret selling if you buy something that's performing better and provides a better future for you and your kids.

$800k is a good chunk of cash to get working for you. That's a $3-4MM property potentially. If you can just get a 12% CoC ROI (not outrageous), that's nearly $100k/year cash flow. I understand that conventional financing isn't an option right now, so I'd be looking for deals with owner financing. It's also worth talking with commercial loan officers at your local banks and credit unions. They're much more interested in the deal and your experience than personal credit scores and DTI. You may just find that they'd be perfectly happy funding a deal.

Speaking of conventional financing and since you're asking for advice, might it be a better move for your husband to focus on getting a W2 job with steady income instead of trying to get a new business of the ground? That brings you some stability and get you on the road to use conventional financing in the future.