Sell property to buy multiple others?

[Tim Kaminski]

Market is hot, getting cash offers that are way over what my property is worth. 2.5x what I bought it at. It is becoming harder to ignore.

Would be about $200k profit from one property that I could use on 2-3 other properties. Maybe not right away with this market but it is an 100 yr old duplex and no one know when the market could turn/property issues could become ugly etc.

I know cycles happen and the property could achieve that worth EVENTUALLY, but how long would that take? 8-10 years? Or I realize the gains now. I am in the business to make money after all. Again, I don’t think the property would appraise at what these offers are so the “just refinance” argument doesn’t speak as loud to me.

What am I missing or should I take the money and reinvest on multiple others?

[Joe Villeneuve]

Your not missing anything that should keep you from doing exactly what you just described.  This is the way to achieving your financial goals quickly and not lose money like you are doing when you keep these properties as is.  Equity gains in a property is an example of losing money,...not making money.  Once a property has been bought by you, the equity becomes your cost for that property, and the value of that equity is really what it is buying...the property, which means the property value.  When you buy a property at 20% down, you are buying that property at 5 times the equity (the initial equity is your DP).  When you property increases in value through appreciation, the equity also increases an equal amount (1 to 1), which dilutes the value of the equity.

Example:
1 - Initial PV/cost = $100k
2 - DP (20%) = $20k
3 - initial equity = $20k
...property value increases $20k 
4 - New PV = $120k
5 - New Equity = $40k
6 - New cost to Value = 1 to 3 (it started out at 1 to 5)
...sell the property and...
7 - DP(s) = $20k x 2 (2 properties just like the initial one)
8 - New PV (total of 2 properties) =  $200k (not $120k)
...since the CF on the first property if kept won't increase much (if at all)  
9 - New CF should be 2x what it would have been if you don't sell
10 - Repeat this strategy after each property does the following (both).  The order doesn't matter:
   A - the accumulated CF equals the DP (this means you have recovered all of your cost)
   B - the equity from appreciation equals the paid for equity (DP).  
...I'm not including the gained equity from the "paydown" in this equity increase.  The "paydown" equity increase is what you use for closing costs.

This strategy is a great way to have exponential gains.  Do the math to see the true impact.  Assume your properties take 5 years to achieve the criteria for selling (Step #10) and see what the compounding effect has when you execute the above strategy...over and over again.