Knowing When To Sell

[Stuart Udis]

Sometimes the best real estate investments are investments you don’t make. Anyone who has participated in a bad investment understands this. Between the time associated with making the investment, tied up capital and associated stress involved, even if the investment breaks even or produces a small gain most would look back and wish the money sat in their account until a better opportunity presented itself.

In some instance a bad investment can be salvaged by changing strategy. Taking a property intended for a flip and turning it into a rental or vice versa have historically been viewed as the most common pivots but sometimes the best course of action is to sell, even at loss. Seasoned real estate investors are generally best suited to make this call. It’s the inexperienced investors who are most prone to hold on too long.

One of the biggest changes I've observed since I first began investing is the rise in popularity of alternative investment strategies….STR, MTR, leasing to a STR Arbitrage operator, entering into a Sub To arrangement, pivoting to a Section 8 Voucher recipient to name a few. None of these strategies are new, all existed when I purchased by first investment but none were as popular as they are today.

Consequently, there's a rise in investors pivoting to these strategies when their initial investment strategy fails. In many instances putting bad money after good by furnishing homes for STR or MTR leasing or perhaps making their personal credit vulnerable by agreeing to Sub To arrangement. Increasingly it's the inexperienced investors who are making these decisions, often on their first investment. They believe they are salvaging a bad investment but in most cases they are making matters worse for themselves.

Understanding when to cut your losses and sell a poorly performing investment is one of the most difficult decisions a real estate investor must learn to make. It’s also a complicated one. There’s money, time, emotions & pride involved which often clouds judgement. Unfortunately, with the number of pivots that are publicized and at inexperienced investor’s disposal, there’s never been more avenues for inexperienced investors to hold on too long.

I hope inexperienced investors are mindful of this because I am constantly interacting with investors who are falling for these traps and doing immense harm to themselves, even if they may not be fully aware at the time of their decisions.