Are Landlords selling?

[Jeff Gates]

I spoke with a Landlord yesterday. He had nine SFR's and he is selling. He sold six so far. He said this is a market high and he is cashing out. I asked him how long he had these and he said some ten years, some less. I asked him what will he do now? He said wait for the next market low and buy again.

[Jim D.]

I don't know of many investors selling in the circles I run in (though that's a limited sample size).

If you suspect a downturn is coming, it makes sense that you'd want to cash out and wait to buy low. However, there are several factors working against you if you do that:

1. What will you do with your funds in the meantime? Just accept 0% return for 5 years?
2. Say we have a solid downturn and prices drop by 20% over 3 years. The investor who holds through that period does lose 20% equity. However, they also continue to pay down their mortgage AND earn whatever cashflow comes in on their properties--something you miss out on if you are on the sidelines.
3. You also have the extra cost of all your selling/transaction fees if you use this strategy of hopping in and out of the market. 

My thinking is that if it's a severe downturn a la 2008, then it would make sense to sell out and buy in again IF you can really time it well (easier said than done). If it's a more moderate downturn, the above factors would probably cause you to come out behind the investor who just sits tight.