Is now still a good time to sell my 45-unit?

[Lee Yoder]

With the rise in interest rates, we are seeing price decreases on MF properties, at least here in Ohio. 

While we were expecting to sell our 45-unit in Dayton, OH for $3M, we are now looking at a sale price of $2.8M. Obviously, feeling like we're losing out on $200k is not a good feeling. We are cash-flowing very well, so we could hold and wait for the market to turn around so that we can sell for $3M, but it may take years for this to happen, or it may not happen at all. I want to move our equity on to our next project, so I'm still motivated to sell, but I don't want to rush it either.

Is anyone else finding themselves in this situation? 

What would you do?

[Arn Cenedella]

@Lee Yoder

Great question.

1. You haven’t really lost anything. One might say equity doesn’t exist until the asset is sold.

2. Whatever you feel you “lost” on the sale of the existing asset should be able to be “gained” on the new acquisition. If you feel you lost 7% in value due to interest rates and current market, the price of the asset you buy should also be down 7%. What you lose on sale you gain back on purchase.

3.Part of the answer also involves how much equity you have and are you looking to buy bigger?

If you sell at $2.8M (a $200,000 loss in equity two months ago) and buy at $5.6M for a property that would have been $6M two months ago, you actually have a $200,000 gain.

4. Answer may also depend on debt - if you hsve long term fixed rate debt at a good rate and could only buy with floating bridge debt, I would just sit tight with the existing asset and not expose myself to interest rate shock.

5. If sale, can you buy in a market you like better?

It’s an excellent question, it’s complicated but these are some points I would consider.

arn