Time horizon for holding a rehabbed property

[Paul Khazansky]

I've been thinking quite a bit about the issue of appropriate time horizon for holding a rehabbed multi-family property. The idea is to buy a property and rehab it, which make take anywhere from 6 to 12 months. Shortly after it's rehabbed, it becomes stabilized by achieving 100% occupancy. The question is what criteria should I go by to determine the appropriate holding period for the property? Is there a strong case for not selling the property within say, first 12 months once it becomes stabilized? Let's assume the market stayed roughly unchanged between the time of acquisition and 2 years after, so market timing is not a factor.

Thanks in advance!

[J Scott]

Two things to consider:

1. As Marco Santarelli mentioned, you might be able to avoid some taxes by holding more than a year. But, you should check with your accountant, as if your intent is to flip, the holding time may not matter (you might get stuck with the taxes either way). To be honest, I'm not sure how this works with income-producing assets, so check with your accountant.

2. If you're planning to flip the property, you'll likely find that the longer you hold the asset, the lower your Internal Rate of Return (IRR) is. You'll get your highest returns by selling quickly, as the bulk of your returns will be driven by increasing the value, not the monthly income. So, if you want large returns, you'll likely want to sell as quickly as possible.

Balance both those things above to figure out how to maximize income and returns.