Seeking advice for improving returns on my portfolio of 8 units

[Matt Leber]

Hello BP. I have been thinking about how I can improve my rental property portfolio consisting of 8 unit streams. I have been tracking returns on my properties with a spreadsheet I created for myself, and I have identified that 4 of the 8 units I own have been consistently underperforming the rest of the portfolio for 3 years now. I am tracking my returns based on cash flow numbers only (for conservatism reasons - I look at appreciation as icing on the cake).

A little background:

The underperforming units are all part of a small multifamily compound in a lower income neighborhood that I purchased in 2018 that looked great “on paper” but after tracking their performance for a few years, experienced less than expected returns due to one issue or another that has cropped up (more capex up front, tenant that I couldn’t evict for 10 months through covid, multiple vacancies causing turnover costs). They are older units (1960) so I will likely see other capex items sooner rather than later if I kept them for 30+ years. They have very little appreciation potential, which I don’t mind if cash flowing well. These properties have strengths of being very low mortgage cost, room to grow rents over time (they are almost 2% rule), and in a affordable rental class that seems to have a major shortage in today’s world. They still make enough cash flow to allow me to hold them if I choose.

So my questions are for experienced investors who do this sort of purge analysis on their rentals, how long do you typically give underperforming properties a chance to meet potential? Is my 3 year “leash” too short sighted if I decided to cut bait and 1031 exchange into something else newer build in a better neighborhood?

I see both pros and cons to keeping the properties in my portfolio, and I always envisioned keeping everything for 30 plus years, but I am now wondering if I should tweak my expectations. Thanks for your opinions and advice!