When to sell properties

Question

When Do you think the best time would be to sell off a small portfolio?

long story short, I will be starting grad school next year and will not be able to work while in school for the next three years. I am wanting to sell off my 4 properties and use those proceeds to help fund the next 3 years of living expenses for my family and I.

Question is, should I go ahead and sell off all the properties now while I am still have a job and sell will be reflected on 2024 Taxes, them 0 income next 3 years. Sell them all off next year when my earned income will be $0, or try sell Mayne 1 or 2 now, and then the other two next year?

I would immagine from a tax perspective, next year i would be in a much lower tax bracket, but then i am not sure if i might be missing something in regards to student loans, etc...

Chris Allen · Answer

Thank you all for the replies! As of right now, we are in the process of trying to sell my SF-LTR.

@Basit Siddiqi two of the properties are STR's and cashflow pretty well. As of now, the cashflow over 3yr would be near if not more than the equity I have right now. My personal residence I think I am going to try and and turn it into an STR and see if I am able to keep it over the next few years.

@Marcus Auerbach that is my exact thought right now. I think I would regret it much more later on, so my thoughts right now are to only sell one of my properties, and decide to sell the others if needed while in school. Not going to school wouldn't be an option for me. This is something I have planned to do for years, and this advancement would triple, if not more, my current income.

@Jason Malabute Cash-out refinance wouldn't be an option for these either. All properties either got financed, or a HELOC during the last 2 years, so the equity available along with the cost of the increased mortgage wouldn't make sense. But yeah, I am thinking right now I would rather just hold.

@Armstrong Maignan, that is not a bad idea to consider. My duplex cashflow's well, so an above market offer would not be a bad consideration at all!

@Gino Barbaro My thoughts exactly. I think I am going to try and hold for now, and sell later if needed. Would be in a lower tax bracket at that point anyways. And if all fails, I could sell after I graduate, and take the proceeds and pay off my high student loans if needed, or just "level up" to a different asset class when I am in another profession.

Jason Malabute · Answer

Chris, I can really relate to this question because back in 2021, I sold my single-family home portfolio to get into multifamily investing. While selling your properties could provide the liquidity you need, you definitely want to consider the tax implications, especially if any of the properties were held for less than 12 months, as those will be taxed at a higher short-term capital gains rate.

However, if selling isn’t your only option, I would strongly recommend looking into a cash-out refinance. This could give you access to the cash you need without selling the properties. You get to keep the rental income, continue building equity, and the money from the refinance isn’t taxed since it’s considered a loan, not income. If the rental income is still strong after the refinance, you’d have a great setup—cash in hand and properties still appreciating with tenants paying off the loan.

It’s definitely worth considering this strategy before deciding to sell off your entire portfolio. Hope that helps!

Gino Barbaro · Answer

@Chris Allen

I would talk to a tax planner. Do you need to sell all four, can you refinance them to access some equity?

Market may not be ideal to sell right now, but if you wait as rates drop, you may get better pricing.

If you do sell when you have no income, you obviously would be in a lower bracket.

Theresa Harris · Answer

I would try to keep it if possible.  I bought a condo while in grad school to live in and rented the other room out.  I then turned it into a rental as I went on to do my PhD in another country.  Best decision I made.  Rent paid for all of the expenses, so it cost me nothing and over the years (I kept it for ~20 years) price almost tripled by the time I sold it.

Not sure what grad program is 3 years (I'm used to 2 for masters, 4 for PhD), but if you do need to sell one, I'd look at each property and see which one has the most equity, highest interest rates, lowest return, major expenses in the near future (eg new roof) and you mentioned you'd lived in two for 2 of the last 5 years, so have capital gains exemptions.  If one is a duplex and the other a single family home...I'd bet the single family home is the better one to sell.  You may not have as much equity, but interest rates are probably higher and you wouldn't have to deal with have a vacancy while you sold it.

Will you truly have zero income while in grad school or will your partner be working?  Good luck.  Grad school doesn't need to be stressful.

Michael Plaks · Answer

Best time to sell is usually never. The next best time is when you decided you want/need to sell it for business reasons: current market is favorable, you have a better investment opportunity, you have an offer you can't refuse, and so on.

The worst time to sell is when you were waiting to sell due to tax considerations, and now you can't sell anymore. Tomorrow your current offer may not be on the table, and taxes won't matter then! Anything can happen: the market can shift, we can go into another extended lockout period, the property can be destroyed by a natural disaster or by vandalism, the list of contingencies is endless. Including your personal situation. Holding onto a property merely for tax considerations is a dangerous gamble.

But if you want to gamble - yes, selling in a year without a W2 job usually saves on taxes. Usually but not always. For example, you may have suspended losses or some other circumstances that change the game. The only way to tell is by a careful review of your current situation and your expectations of your future situation. And yes, non-tax considerations matter as well, such as your ability to borrow money or your student loans.

Account Closed · Answer

Oh nice! in that case, sell just one for tax free gains and then wait another two years to do it again

Account Closed · Answer

You likely still would owe capital gains tax on these. I would recommend doing everything possible not to sell and just hold for the future. You wont regret it! Even if you hold just one

Armstrong Maignan · Answer

As a realtor who just read everything you and everybody else had to say; my suggestion is that you list the tax exempt home at a price slightly above market value.

I say this because though the money would be nice to take some pressure off, it seems like making a little more money in a hopefully & currently less competitive neighborhood would be the icing on the cake to make it all worth the considerations.

Marcus Auerbach · Answer

You will likely regret in 10 years that you sold them. Everyone does.

But the question really is what is the bigger regret? Stressing while you are in school and having student loans or regretting losing your REI.

They say if there is a will, you can find a way. What do people do who don't have rental properties? Don't go to school?

When to sell properties

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