Hold or Sell? Need advice

[Dustin R. Smith]

My wife and I own 4 properties, 1 commercial building and 3 condos, soon to be 2 as I just sold one that is in escrow. We have 2 units in Folsom, Ca which is a middle-upper end community and the units have been fantastic rentals and will continue to be for the long haul. My only play here would be to sell while the market is high stock pile cash and then buy when the market crashes. I am not sure if it makes more sense to sell one or the other or just not sell either. First unit is a 1/1 we paid $135k for it and it’s worth $290k. We owe $103k. Monthly income of $340 on $1650 rent. 4.25% loan with 11 years remaining. Second unit is a 2/2 we paid $287k and it’s worth $355k. We owe $265k. Monthly income of $390 on $1994 rent. This was a personal residence that went through a loan mod when things were tough and was converted to a 40 year mortgage to lower the monthly payments. We still have 35 years left at 4.75% So for that reason I dislike. I would prefer to keep the 2 bed/2 bath because I think they rent better than 1/1 although we have never had trouble renting either. My mind changes dad by day if I should keep them or sell them. If I sold my 2/2 I could just about pay off my 1/1. The other unit I am selling was owned outright and made us $1200 per month. We are in escrow to buy another unit which will do the same. So if I sold my 2/2 unit would get around $75k after fees/taxes (I can avoid most tax on this unit). Then i can pay off the 1/1 which would give us $1250 a month and $1200 a month from the two condos. Part of me wants to de-risk by paying the mortgages off before this market crashes. We are both 33 and have income that is affected heavily my the real estate market. So when it crashes we will be making much less. On the flip side I can sell my 1/1 which has a lot more equity and pay a sizable amount to the loan on the 2/2. Thoughts?!?!? Thank you in advance.

[Jeremy Brown]

There are many possible problems with selling now.

You assume a crash is coming soon. I see no signs of an eminent crash in Folsom. On the other hand, I see complaints daily of high rents and no supply. The population in Folsom and the broader area continues to grow faster than the housing supply.

Being 33, you only have firsthand experience with one market cycle - the recent one with a major crash. That’s rare and the normal case is a smaller correction. If you sell now, chances are good the market will continue to grow for awhile, have a correction at some point, and then grow again. There is absolutely no guarantee that prices will decline even to where they are today. They could go up another 20%, drop 10%, and then go up again from there.

Turning over properties is expensive. You’ll have commissions, likely some repairs, and a ton of lost time dealing with they buying and selling.

Last thing I’ll point out is your loans are at good interest rates. If you sell now and try to buy again soon, you’ll have higher rates. Again, no guarantees of rates dropping back into the low-mid 4% range during the next correction.