Should I sell or hold in an over-valued market?

Question

Hello BP crew! I’ve got a dilemma, I’ll try to keep my question short and concise.

The housing market in my area (Austin Tx) is BOOMING! There’s almost zero inventory and buyers are paying far far above asking. It’s unreal.

I bought a home several years ago inside the city and can likely sell it now for a ridiculous profit.

My question for you seasoned real estate investors is, do markets like this ever go down? I understand that it might slow down a bit, but with everyone flooding here I can’t see how builders could ever keep up with the demand. Would it be more advantageous for me to just hang on to my property and risk the demand falling in the future? Or should I cash out while people are willing to grossly over-pay for a home?

I’d like to squeeze as much money from my property as I can and it seems that right now people are willing to pay an extreme amount of money for homes just to be here.

James Carlson · Answer

@Brandon Galloway

The answer as it is to most real estate questions: It depends.

We see this in Denver and Colorado Springs, both crazy markets with record low inventory and high demand from coastal migrants from San Francisco, Seattle and Boston who still see the prices here as relatively affordable and with an unmatched quality of life.

Aaanyway ... to your question. Do you have a lot of equity? Could you 1031 exchange into two or three properties with that money? We're planning to do that with our first ever real estate purchase this summer -- a Denver condo that has about $125,000 in equity in it. If we can take that out tax free and use it as $60,000/20% down payments on two other rental properties, I like that doubling of my assets.

If you don't have a ton of equity, you might keep for a bit. Plus, Austin is poised to appreciate for the foreseeable future. A Zillow survey of economists ranked Austin as the likely hottest real estate market in 2021. I have an awesome agent down there who's an investor and realtor for 17 years, and she said there's no signs of it slowing down.

Jordan Moorhead · Answer

@Brandon Galloway the right time to sell in my opinion is when you have a better use for the money that will give you a better return. There's not a wrong time to sell IMO.

Lynn Wise · Answer

@Brandon Galloway I agree with Jordan. If you can sell one property to buy multiple in a different area of growth, that seems like a great option. I’m in the process of selling a rental in Austin so that I have some cash reserves to do a flip. I believe Austin home prices will continue to climb, but no one has a crystal ball and just like in any market there are good investments in Austin and bad ones. Even if you don’t sell, it might be a good time to pull out some of your equity in a HELOC or cash-out refi. Whether to sell depends completely on your strategy!!

Bill B. · Answer

It doesn’t sound like an overpriced market (think North Dakota during the fracking rush) but rather just a higher priced market. There’s a HUGE difference. People invest in high priced markets all the time.

There is ZERO reason to sell unless you you plan to move out of the area (if it’s your primary) or you plan to invest the money in a different area (if it’s an investment property.) otherwise you’re going to sell and put the money in a checking/savings/money market account that pays $1/mo per $100k. ”Nobody” thinks the Austin market will be cheaper in 10 years. So barring a better use for the money, or you move out of your primary and out of state, you use it as a rental.

Jonathan Greene · Answer

I would sell in almost all markets now if I wasn't planning on buying back into the same market as many others have said. Like I would definitely sell high in Austin now and take that profit to an area where I can get two or three for that, right outside San Antonio if you want to stay close. Austin is definitely going to stay hot and keep appreciating, but once the sales prices are far outpacing the rent expectation comparison, I sell.

Brandon Galloway · Answer

Thanks for the great responses everyone! Sound advice. I have quite a bit of equity in the home, probably at least $150k if not more. I don’t plan on moving out of the area but would like to jump into a larger, more permanent home, while also using some of the equity to invest.

I suppose I should look into borrowing against the equity and making some moves. I’d like to get into real estate investing, I just don’t know where to start.

Should I sell or hold in an over-valued market?

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