Investing for Appreciation - Where's the Exit?

Question

If you're investing for appreciation, when will you sell? For clarity, I'm not talking about forced appreciation or buying at a discount and having instant equity. I'm talking about appreciation that occurs as the market rises.

So, if you buy property for appreciation, how will you know when to sell?

Rich Weese · Answer

Every time this subject comes up, I'll answer the same. NEVER.. Simple as that.
     I'm old enuff to speak from experiences and not concepts. I also have practiced what I preach.
1. Buy great deals.
2. Keep for appreciation and let tenants pay the mortgage off.
3. Benefit from tax benefits.
4. re-fi down the line when you THINK of selling. No commission , and no taxes incurred!
5.When basis is gone, 1031 to higher basis and keep going.
6. Funnel ALL properties into a trust for future generations.
 
     YOU HAVE UNTAXED GAINS, FUNDS CREATED TO DO OTHER PURCHASES AND NEVER PAY TAXES. Rich in Dallas.

Account Closed · Answer

Buying for Appreciation.

Where is the exit? Where and when it is needed.

If you purchase a "buy and hold" rental and  your purpose is to unwind it for a profit when your income is at a lower tax rate, typically retirement, then that is where and when you sell it unless

1- a cash situation requires sale now

or

2- a bubble dictates a better cash return converting to cash and investing at a risk-free rate, typically treasury rate and equaling or bettering the same situation

If you have been holding a property for 20+ years, the yearly return on original investment is often well over 50% per year, sometimes 100% per year, rents rising and  tenants paying off the mortgages and all.

Now, return on current value is no where near that, but that is not a criteria.

If we unwind, recapture depreciation, pay our taxes, and are left with cash, will that same income be available to us with the same tax implications?

It is all mathematics after all..

Given the cash coming in, constant capital improvements, meaning changing but constant depreciation flow and therefore return with minimal  taxes being paid,

unwinding earlier must be the result of that emergency need or the said  bubble in values resulting in a chance to eat the cap gains, depreciation recapture and still be able to beat that return with a risk free investment of the proceeds left by Uncle Sam and local state taxes.

As far as believing a bubble is ever expanding like our universe, well,

Hogs get fat, pigs get slaughtered.. as always.

Account Closed · Answer

I do hold property expecting appreciation over the long run, but my primary investment objective is not appreciation.  Over time I will trade some of my holdings in for other properties, but my general intent is to hold at least until I retire.

Mitch Kronowit · Answer

I had a Realtor tell me once, "Never sell a house unless you HAVE to". Well, I've never had to, hence never have sold one, only bought.

Bryan Hancock · Answer

I'm with Rich...never sell!

Mike McKinzie · Answer

Rich
Although I can appreciate your great success and see that a buy and hold is an excellent investment strategy, there comes a time when you should sell, if for no other reason than getting a better return.  To exaggerate the point, if you had  a house worth $1,000,000 and could only get $1,000 a month rent, you would be better off selling, doing a 1031, and buying 10 houses, $100,000 each, getting $1,000 a month rent.  Why mortgage the $1,000,000 home just so you could keep the $1,000 a month income on it? By selling, you change $1,000 a month income into $10,000 income, and have no debt.  Sounds like a better choice than just refinancing.

Again, this is an exaggeration, but it brings up the point of MikeOH's original question, "Where is the exit".  BUT, he was asking those who are investing for appreciation, which you, Rich, are not doing.  You are buying for cash flow.  Cash flow is king, but appreciation is like a "Christmas Bonus".  Sometimes the Bonus can be bigger than your salary, so you should TAKE IT.

For me, anytime the rent falls below .25% of the market value, it is time for serious consideration of selling, ie, if I am getting $1,000 rent and the house has appreciated to $400,000, as the saying goes "TAKE THE MONEY AND RUN".

Jon Klaus · Answer

"when will you sell?"

When I can get a retail valuation and 1031 exchange into something better.

Michael Rossi · Answer

I trade on technicals, so I only buy stocks when they're jammed up against a wall - either support or resistance depending on whether I'm buying or shorting.

For example, I sold short GPS (The Gap) at $18.63 today.  I did that because I think the general market is at or near a top AND the stock has been going up on decreasing volume and there is 9 month resistance at $18.76 AND the stock is overbought looking at RSI AND it gapped up a few days ago (gaps usually fill), etc.  I'll put a tight stop in it, probably at $19.06.  If the stock continues higher it violated my expectations and I'll get stopped out.  If it follows my expectation and goes down, I'm initially looking to cover at $17.25.  If it makes a significant move down, I'll move my stop down a little at a time so that I'll be guaranteed of having a profit.  So, I'm risking 30 cents in search of a profit of at least $1.38.

So, I'll sell at 19.06 or $17.25.  That's my exit.

Mike

Eliott G. · Answer

As for stock...a few trains of thought...

Warren Buffett's thought: - NEVER SELL

Trader's thought - When I make 15% or 20% or when i lose 8% or 12%

My personal thought - Know what you are selling it at when you buy it...could be a price, a date, an event(earnings or product launch) or a specific % return.

As for real estate...a couple of options:
- NEVER(typically only cashflow properties)
- when someone will pay a certain amount giving you a certain $ amount gain.

just some thoughts

Ted Harris · Answer

I'd consider selling when I saw a better opportunity come along and needed the money ...

Investing for Appreciation - Where's the Exit?

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