Would you sell this building?

[Nick M.]

Would you keep for the long term or sell this property?

- Purchased a 1960's vintage building, 18 units, in 2017 for $1.5M
- In a major urban city in the northeast
- Put $400K down and have paid down $100K in loan (so the balance is $1M)
- Purchased it to supplement my 9 - 5 and use it as a resource of income to retire (15 20 years from now)
- It's comprised of studios, 1 bedrooms and 2 bedrooms.  General square footage is on the small side.
- It barely squeezes out any money per month.  In its best year, 2023 it cash flowed $3,000 a month before increase in property tax and utilities have squandered it down to maybe $1,500.  Moderate rent bump this year has prevented it from going down any further.
- It's been well kept
- Between transaction costs (e.g. broker fees, transfer fees), capital expenses, tax recapture I would need to sell it for $1.9M to break even.
-  At it's height (2022), it could have sold for but $2.7M.  Now it could sell for $2.1M.
- Would you sell for a gross profit of $300K or keep it, with a cash flow of about $1,500 a month? 
- I haven't been able to find any 1031 opportunities (buildings or otherwise) to roll the money into

I appreciate learning your thoughts on whether to sell and keep.

[Amby Bhagtani]

Quote from @Nick M.:

Would you keep for the long term or sell this property?

- Purchased a 1960's vintage building, 18 units, in 2017 for $1.5M
- In a major urban city in the northeast
- Put $400K down and have paid down $100K in loan (so the balance is $1M)
- Purchased it to supplement my 9 - 5 and use it as a resource of income to retire (15 20 years from now)
- It's comprised of studios, 1 bedrooms and 2 bedrooms.  General square footage is on the small side.
- It barely squeezes out any money per month.  In its best year, 2023 it cash flowed $3,000 a month before increase in property tax and utilities have squandered it down to maybe $1,500.  Moderate rent bump this year has prevented it from going down any further.
- It's been well kept
- Between transaction costs (e.g. broker fees, transfer fees), capital expenses, tax recapture I would need to sell it for $1.9M to break even.
-  At it's height (2022), it could have sold for but $2.7M.  Now it could sell for $2.1M.
- Would you sell for a gross profit of $300K or keep it, with a cash flow of about $1,500 a month? 
- I haven't been able to find any 1031 opportunities (buildings or otherwise) to roll the money into

I appreciate learning your thoughts on whether to sell and keep.

Keep it buddy unless you need the money. You will find the peak of 2.5m plus again. Real estate always goes up with time unless the area turns on you, for example SF. Good luck 

[Gino Barbaro]

@Nick M.

It's a 1960s property that's only going to get older, and possibly need more cap ex. It sounds as if you're not happy with the asset, the size, the unit mix, and its performance.

You could wait until rates drop, and find someone willing to pay a higher price than now. I think it comes down to if you have an opportunity to role it into another opportunity. 1500 a month is 18000 per year. You would need over 16 years of cash flow to equal 300,000.

Tough call. If you can roll into another deal then I would sell

Good Luck

Gino

[Theresa Harris]

Do you have expensive maintenance on the horizon?  While it may only cash flow a set amount each month, don't forget that the principal on your mortgage is also being paid down and (in the long term) the value of the complex is going up.

Are you able to invest that money elsewhere (factoring in cap gains or 1031) and do better?

[Nick M.]

Thank you for taking time to share your thoughts.

The roof has been largely replaced and a new heating system and water tank was put in a few years ago.  I don't envision any large cap ex.  Just routine maintenance.

If I were to take the proceeds from the building and place it into a CD paying 4%, it would more or less amount to the total return I make in monthly cash flow and monthly principal pay off.

[Ko Kashiwagi]

If you find a screaming opportunity, it may make sense to sell. Otherwise, given its location you'll probably see the price climb back to 2022 prices at some point. It takes a lot of work to find deals, underwrite, sell this one - so if it's not a much better deal, it's hard to justify it

[Adrian Clapp]

I’ve been in a similar situation with a commercial office building in the northeast.  Two lessons I have learned: 1) CashFlow is critical and 2) Sometimes it’s good to sell when things are going well- I bet you weren’t considering selling when it was worth $2.7M.  At least with residential Multifamily your building is more likely to increase in value again.  With the current positive CF and interest rates hopefully falling in the near future I would hang on for now until the rates come down and values start increasing again.  Especially since you haven’t seen any suitable replacement property.

I will add that you will probably feel really good in a couple of years when you sell it.  It’s probably still a significant amount of work for $1500 per month CF.

[Chris Seveney]

@Nick M.

Making $18k a year on a this investment is not a good return

I am curious how in 7 years rents have not gone up to overcome taxes and insurance - but neither here nor there.

Issue is if it’s not cash flowing at its current value when you look at noi and cap rate what makes it appealing for someone to pay that amount?