Is this the time to be selling your rentals
South Plainfield, NJ · Member since 2014 · 50 posts · 11 votes
Prices are at an all time high and demand for rental properties is skyrocketing. For those of us who purchased a few properties after the crash, the appreciation is staggering. Is it time to sell and leave the table and cash out while you can? If you can make now what it would take you to make 10 years of cashflow, does it make sense to sell? I feel like with impending legislation, especially in NJ, it is becoming more and more difficult to be a private landlord
Devang, We had a free & clear property that was vacant we were considering for rent; In my area we estimated it would rent for roughly $1k per month. Which we believe is good cash flow. We also spoke with our trusted realtor; we had our realtor assess the home and of course our realtor suggested making some updates and listing it. We went with our realtors suggestion. Id say we spent about 8k in updates and took about a month to get it looking how we wanted. OMG we received multiple offers some up to 20k over our listing amount. We had soooo many offers we jokingly accused our realtor of starting a bidding war. Long story short, after doing the math it would take roughly 12.5 years to get our offer amount by renting; yeah we understand homes usually appreciate over time; however in these current times where demand is super high; and all the red tape surrounding landlords; Id say cut sling load and sell. Go with the flow of the sellers market and Cash Out!
Agree with @Steve Vaughan a big factor for me is ROE (return on equity). I'm of the opinion that cheap debt on cashflow producing properties is the best hedge against inflation and therefore it is a good time to evaluate your equity in each property and whether or not to apply more leverage. Cash out refi's and HELOCs are options if you wish to keep the property, but the best interest rates and LTV ratios (greatest leverage) are often available on new purchases. Coupled with the fact that you are already thinking about relocating your investment(s), getting additional leverage is an added benefit.
# of years of cashflow is not a metric I personally consider and I think it has a lot of flaws. If you held for the 10 years of cashflow, you would also have 10 years of appreciation which will likely surpass the amount of cashflow (vs. if you 'cashed out' and held cash). My only replacement investment for my rentals would be more real estate and the investment I 1031 into would also have cashflow and appreciation benefits. If your intent is to sell your rental(s) and leave the RE asset class then I suppose the # years of cashflow metric might be more applicable, but I think it heavily relies on the assumption that you've accurately timed the top of the market which requires a crystal ball and sorcery above my pay grade.
Any advise for someone who owns only a single multifamily and needs to relocate to another state due to a job change? I am satisfied with the cash flow but managing remotely feels like a pain at the same time 1031 exchange doesn't seem feasible due to the limitation of time.Is selling and investing in
RE mutual fund a better option?
Any advise for someone who owns only a single multifamily and needs to relocate to another state due to a job change? I am satisfied with the cash flow but managing remotely feels like a pain at the same time 1031 exchange doesn't seem feasible due to the limitation of time.Is selling and investing in
RE mutual fund a better option?
I owned a single family and went overseas for almost a decade and remotely managed it, as well as picking up additional properties. However, I had an agent who I trusted intimately and who stayed with me the whole time, and frankly, did more than she should have done to help me out.
I wouldn't recommend anyone do what I did though. There were enough moments when I wished I could have been local even then, and "local" took a 20 hour plane ride. No thanks.
I'd sell. Especially given the market right now.
@Devang Patel My first thought is a 1031 to utilize all of the equity you have acquired. It appears you are planning to remain investing, but if NJ is becoming troublesome, why not move to a different market?
I have been using this time to consolidate and update. I actually use the metric you mention. If I can make 10 years worth of cashflow on the sale then it's worth selling to me. I can 1031 that into something bigger and better, or bite the bullet, pay the taxes, and pay down a LOC so I have more options when something comes across my plate.
Right now the market I am only has 20% of the usual number of properties for sale so anything close to a deal that comes on it scooped up within 24 hours. It's an unbelievable time to sell.
The hard part is finding a deal for the 1031, but, at least in my market, most of the cash on the sidelines is just watching the MLS just as they always have, so when I put more work in, I am able to make deals that work.
@Devang Patel are you looking to walk away from investing all together? If your answer is no, I believe a cash out refinance or HELOC would be a better alternative to getting your hands on that equity. Rates are still historically low, and I've seen with clients refinancing they may have a higher loan (from pulling cash out) but their over all monthly payment is comparable to what they are used to because of the lower rate. Now this is assuming you have a higher rate than what you could get today, but either way both a cash out refinance or HELOC is something worth looking into before you sell.
@Devang Patel I sold 1 of my first rentals rental early this year after doing the math on how many years of rent it would take to get to my profit. I then invested in Bitcoin kinda early ish, then pulled it out, luckily before BTC came back down. Having cash to play with is nice, though the rollercoaster has given me a fresh appreciation for real estate and holding. It just so happened I didn’t love putting time into that unit so cashing out has had other benefits in terms of balance. Also now I’m ready to rock. Yep I just paid taxes It actually felt great in this instance, like I was a contributing member of a bustling society, or something:)
An old guy (to me then--- Im an old guy now) who owed dozens of homes all overe the central states once told me:
"They keep makin' babies but they dont keep makin' land"
Ive either been a mortgage broker, real estate broker or appraiser since 1980. There is no way to answer you without a LOT more info. How many properties, whats the gain on each if sold now, tax implications, how long owned, what are your future income needs, future cash needs, on and on. Its easy to say 'just 1031 em' but thats complicated and has its own pitfalls including you can screw up if timed badly.
Here in Oregon (Oragun) we have had all time record breaking appreciation. Why? Well in the good old pre 2009 days it was all from fake loans. Now its mass movement of people away from states with year by year changing bad weather, turned economies like those states that were depending on the USA developing its own oil based power (I WILL NOT STOP FRACKING said Slow Biden) states that are fill with Marxists driving the true patriots out to Texas and other patriotic states, etc. We are seeing urbanites scrambling away from the cities and into suburban and rural areas. Oregon needs rentals so badly that I, for an example to some investors, put a Craigslist ad that said "I have a 5 bedroom two level house with two kitchens. Looking to make as much money as I can and need bodies. Make offers" I had to cancel the ad in two days from the email load. I had people offering $750 a month to put a hammock in the garage. Im not kidding. They are building thousands of new houses but it will never be enough. You can make $2000 a month rent off a two bedroom. Would I sell rentals here? In fact NOBODY is selling anything here. Inventory at historic lows. People dont want to give up the growing appreciation or they can turn down monster cash flow. Id not sell---Id buy more if I could steal a foreclosure or something. Also, where are the properties? WHats the future of the area (as I just showed what Portland probably is) In Santa Cruz Calif, south of San Francisco in Monterey bay, a 2 bedroom starter home is one million dollars. Look it up. There are more vacation and summer rental properties there than owner occupied. Would I sell my rentals there? I could give examples of slowing and reversing cities but Im taking too much time. I watched a N Dakota city teeter totter in values as fast as a hummingbird wing over the last 7 years---all due to the oil markets and coal markets. To conclude my overly verbose answer, you need a very knowledgable financial planner.
@Devang Patel
You cash out refi on your appreciation, which is tax free and then go buy more today or wait for 6 months and see where the market is going.
But need to do the cash out refi today when you were sure of that higher appraisal value.
I believe the only reason you would sell is if you're done with real estate investing. I can't see the reason to take a capital gains tax hit and get out if you have had properties for that long. I think you have to look at it from two different scenarios.
Are you done investing in real estate and ready to pay major taxes? SELL!
If not, time to consider doing a 1031 and using all that equity to your benefit and get more doors.
@Peter Morgan
DSTs and QOZs eliminate the hectic time constraints and the need to be local. It’s worth researching.
Any advise for someone who owns only a single multifamily and needs to relocate to another state due to a job change? I am satisfied with the cash flow but managing remotely feels like a pain at the same time 1031 exchange doesn't seem feasible due to the limitation of time.Is selling and investing in
RE mutual fund a better option?
I owned a single family and went overseas for almost a decade and remotely managed it, as well as picking up additional properties. However, I had an agent who I trusted intimately and who stayed with me the whole time, and frankly, did more than she should have done to help me out.
I wouldn't recommend anyone do what I did though. There were enough moments when I wished I could have been local even then, and "local" took a 20 hour plane ride. No thanks.
I'd sell. Especially given the market right now.
These stories are great but not realistic. Managing one rental from afar is nothing. Try doing that with a dozen single family and it's a different story.
I see lot's of people who rent out their house when they buy a new one and start thinking I should buy more when they have not had to deal with bad tenants or turnover yet. They just think cool, I got a tenant in a week, that was easy, let me do that again. Once you have a lot of tenants or assets to manage doing it from afar is not feasible without a full time team. Your realtor would have charged you tens of thousands a year if you had a portfolio as opposed to one rental...