To Sell or Hold?

Question

So I will try to be brief, but in short my wife and I bought a 4 plex about 3 years ago (read more detail here - http://www.biggerpockets.com/forums/223/topics/139...)  .... So we initially bought this with a short term strategy in mind to stabilize financially to make a career change. As we've learned more about REI we've decided want to do more and need to transition into a longer-term strategy.

So we have a 4-plex that we owe roughly $150k on and I am still researching this, but I think we could make a case for asking roughly $300-$330k. I am thinking that I would be smart to take my gains and either re-invest them into a better long term market (currently in Redding, CA). Also, the goal of the 4-plex was to stabilize income to transition into a new career, which I could now easily do from the amount of appreciation I could realize by selling now.

I don't want to make the mistake of getting greedy and missing out on a good time to sell only to see the market take a pullback and have to wait for another exit point.

I want to transition into stock trading (I know there's a bunch who would like to bust my chops for that:). Another alternative would be to take the gains and 1031 them into more property in a more advantageous market.

As of now my PITI is ~$1,000/mo. and I can rent each unit for $650/mo. Alternatively (and what i'm currently trying) is to rent the units furnished for $850/mo. to internationals and out of state students (which are drawn to Bethel School of Supernatural Ministry) for 9mo. leases and then listing the units on AirBnB.com for the summer months...?

So i'm weighing out collecting a potential $150k in gains and either begin stock trading (under an experience coach of course), or moving my investing out of state, or possibly holding onto these longer in hopes of further appreciation and having the ability to continue renting to ministry students/families.

David Frandsen · Answer

How much do you need for stock trading? Could you set aside 50k for that purpose and invest the remaining 100k out of state? I think keeping your eggs out of one basket may be prudent.

Great job on the 4-plex by the way man. You were the first to inspire my entry into real estate investing and I am forever grateful. Rock on dude.

Aaron Nelson · Answer

@Rodney Smith I haven't done a 1031 in a while but I do know that whatever you SELL the property for you have to purchase at least that much or more in your next acquisition. Also, yes, you can spread out the purchase into several different properties, it doesn't need to be just one. Example, if you sell for $300k you could buy a 4plex in Alabama for $150k, then two SFR homes each for $75k... I'm sure someone else on here will have more specific parameters, but I believe that is a rough idea of one thing you could do. But what you exchange into can't be based only on your gain but it has to be equal to or greater than your ultimate sales price. Hope that makes sense. And yes, I'd be glad to chat about it if you would like to give me a call sometime

Bill Exeter · Answer

I'm jumping in here for a quick comment before I head out to a meeting.  You can acquire one or more replacement properties as long as the total value is equal to or greater than the  net sale price (not gain, profit or equity).  So, the total value of your replacement properties would have be to around $300,000 ish (depending on what your ultimate net sale price is.

Elizabeth Colegrove · Answer

@Rodney Smith

Congratulations on having that kind of equity to invest with.

I just did a 1031 for my parents this past fall with the same return. I split the money up into 3 houses The key with a 1031 exchange is the total value of the new amount has to be equal or great than your pervious.

Why do you want to sell? My husband is active duty military so we move a lot. Therefore we have long distance rentals. I self-manage and do enjoy it. That being said it is not cheap. It costs me more money and I have to deal with instants that aren't exactly my favorite in order to facilitate proper management. When my husband retires we will be 1031 all the money into an area close to where we live.

I know the equity in the house seeming "appealing". Personally if the area is staying the same or improving and you have good cash flow. I would keep on the same direction that you are currently on. Improving cash-flow. Renting the units fully furnished is a great idea as long as you aren't paying for utilities. Depending on your summer cash flow from vrbo that would be great business.

Again, it really depends on your business model.

Rodney Smith · Answer

Reading that post brings up a question for clarification as well ... If I were to take the route of a 1031 exchange and roll the gains into more property, does the property have to be a single property valued at $150k or more, or can the gains be spread over multiple properties adding up to a total of $150k +

Also, @Aaron Nelson I would love to get your advice / feedback on staging our 4-plex in the route of choosing to sell it. I have a few things in mind and would like to bounce them off your wisdom. Let me know if you would be available at anytime to have a quick chat about it.

Thanks everyone for your feedback!!

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