When to sell a rental property?

[Bill Zepeda]

Hi all,

While I consider myself a buy-and-hold investor, I'm curious if it ever makes sense to sell and reinvest. I have four rentals that currently have significant equity due to this market area experiencing strong appreciation growth. I currently have approx 30-50% LTV on three of them and I've considered refinancing to leverage a property and use the proceeds to reinvest or simply sell it and take the equity elsewhere. I realize that a cash-out refi will decrease the cash flow, but taking out the equity provides more buying power to increase the portfolio...OR do I just sell one of the rentals to repurchase? Just not sure if/when the time is right to re-position. Does anyone have a useful analysis/tool to help the decision making process?

Thanks in advance for your thoughts!

Bill

[Thomas S.]

As a investor you need to get your head around the fact that equity in a rental income property reduces cash flow due to the opportunity value of cash. Pulling out equity does not decrease cash flow it increases cash flow. Not simply on the property it is removed from but also from the reinvestment in additional cash flow investments. Based on a 10% opportunity value of cash for every 100K in equity you are reducing the positive cash flow on a rental by $833/month. In essence equity kills cash flow and would be better parked in a mutual fund than a rental property. Equity is where money goes to die..

I do not believe you fully understand the value of cash/equity and should take the time to further educate yourself on investing. Never too late to start.