Should I keep these properties or sell and invest in stocks?

[Jon Gorman]

Posting on behalf of a family member:

“I am trying to decide whether to continue to rent vs. sell two investment properties. Two equally important goals: first is to maximize return on investment without eating into principal; second is minimize headaches/stress/uncertainty. I am retired and living in a paid-off house. If I want to have enough investment income to maintain my current quality of life, is it better to continue to rent vs. sell these properties and put the money in the stock market instead, and live off the dividends?

Both properties are in NYC:

Property 1:

• Valued at 800k
• No mortgage
• If I sell, I estimate walking away with 720k after fees and capital gains
• Rent = 3300/month; expenses (condo fees, etc) = 1550/month. So yearly profit is 21k

Property 2:

• Valued at 625k
• No mortgage
• If I sell, I estimate walking away with 562k after fees and capital gains
• Rent = 2400/month; expenses (condo fees, etc) = 800/month. So yearly profit is 19.2k

So if I sell both properties, I would walk away with 1,282,000. If I put this in the stock market, I would need to make a return of 3.14% to match what I’m making in rental income.

Some variables include: fluctuations in the NYC rental market and value that properties may appreciate, increasing NYC taxes and condo fees, fluctuations in the stock market, maintenance costs that will be needed in the next few years that will not do much to increase the value of the properties.

I am not interested in leveraging these properties to buy a third. Too much headache for me.

In 10-15 years’ time, which is the better decision? Keep renting or sell and invest in stock market?

Any advice?”

[Christine Bellish]

Quote from @Jon Gorman:

Posting on behalf of a family member:

“I am trying to decide whether to continue to rent vs. sell two investment properties. Two equally important goals: first is to maximize return on investment without eating into principal; second is minimize headaches/stress/uncertainty. I am retired and living in a paid-off house. If I want to have enough investment income to maintain my current quality of life, is it better to continue to rent vs. sell these properties and put the money in the stock market instead, and live off the dividends?

Both properties are in NYC:

Property 1:

• Valued at 800k
• No mortgage
• If I sell, I estimate walking away with 720k after fees and capital gains
• Rent = 3300/month; expenses (condo fees, etc) = 1550/month. So yearly profit is 21k

Property 2:

• Valued at 625k
• No mortgage
• If I sell, I estimate walking away with 562k after fees and capital gains
• Rent = 2400/month; expenses (condo fees, etc) = 800/month. So yearly profit is 19.2k

So if I sell both properties, I would walk away with 1,282,000. If I put this in the stock market, I would need to make a return of 3.14% to match what I’m making in rental income.

Some variables include: fluctuations in the NYC rental market and value that properties may appreciate, increasing NYC taxes and condo fees, fluctuations in the stock market, maintenance costs that will be needed in the next few years that will not do much to increase the value of the properties.

I am not interested in leveraging these properties to buy a third. Too much headache for me.

In 10-15 years’ time, which is the better decision? Keep renting or sell and invest in stock market?

Any advice?”

 Hey Jon - I agree with @Haresh Patel - you may want to consider selling your properties and investing passively in real estate syndications. Not all are suitable for 1031 exchange, but regardless you can make a lot more than the 3% you are right now, depending on what you choose to invest in. There are plenty of deals that offer both cash flow and appreciation, for zero work required from you - you just have to be sure to invest with syndicators that you trust and have a great track record. It's not uncommon to get 7-10% annually from cashflow as a passive investor, and additional returns after the sale/refi. Plus you get tax write-offs thanks to depreciation - usually even better than what you get if you own your own rental properties personally because it's worth it to do a cost segregation analysis to speed up the depreciation, and take more upfront paper losses on these larger acquisitions. I've seen a lot of deals with 2x equity multiple after 5-10 years. Example: invest $100K and get your initial $100K back plus $100K in returns to double your money over that time.