Should you sell right now?

As a buy and hold investor my first instinct is to never sell. Once I can get past my knee jerk reaction of hold forever I think there are a few other big factors to take into consideration. 

• What is my tax treatment going to be if I sell now or sell later? With properties I've lived in at least 2 years during the last 5 years I may owe no tax upon sale. Definitely talk to your tax professional about this one as I am not one.

• Can I perform a 1031 (like-kind) exchange and put this equity to work elsewhere where it will help me get closer to my goals? 1031's are awesome and allowed me to move the equity from a duplex that cash flowed $400 a month to a 12 unit that cashflows $3000 a month. I love them, but they are difficult to pull off and the Government is talking about eliminating them currently (June 2021).

• What is my return on equity (ROE)? My mind was blown when I started considering this and ROE has been the main driver for every property I've sold. CoC (Cash on Cash) return is my primary goal when buying a property. When I was introduced to return on equity and did a quick analysis on property I was holding I was horrified. What was a 30+% CoC property was only a 3% ROE. What this told me was that with the potential money I had sitting in this property to invest I was nowhere near my goals for returns on my money. To explain this more simply not only was I missing out on Cashflow, which is most important to me at this point but I was also not growing my money as quickly as I could have on any of these properties.

• To further explain why ROE matters I'll provide an example. I bought a duplex in 2016 at $182,000 for $6,400 down (3.5% FHA). I invested $3000 right away into fix ups and then an additional $6000 over 2 years putting at a total of $15,400 invested. I made $400 a month off this property for a CoC of 31%. Two years later after my rehab and the siding getting replaced on the home after a hail storm it was worth roughly $330,000. This meant that my return on the $150,000 of equity in the property was 3.2%. Not stellar. I had to find a way to grow my money more quickly and after evaluating all the options I decided to sell. I could only get up to 90% LTV on a Heloc and the appraisal only came back at $260,000, much less than I knew the property would sell for. This made the decision to sell the only real option to access this $150,000 in equity. I'm glad I sold to as the property was 120 years old and has not appreciated too much more since all of the value add work was done.

So back to 2021 and this crazy housing market we're in. Executing a successful 1031 is hard, always has been but it's even tougher today. You may have to pay capital gains if you sell. I hate taxes too but if you're getting nowhere near the returns you want this isn't the end of the world. I looked into doing a 1031 with a place I sold last year and couldn't pull it off in time so I had to pay taxes. Shortly after the identification period expired my partner and I found a package of houses that made a 15%+ CoC return. I'll take that any day AND the taxes on the gain was only $20,000. I was making roughly a 2% ROE off that property and only an 8% CoC so the taxes were worth it.

It's not the worst thing to test the market right now with your property either. Find a price that would net you the amount of money you need to take hit your goals and list the property there. Your agent may hate you but talk to them, maybe your crazy pie in the sky price isn't that crazy right now. You may be thinking, "I wouldn't pay that for this property". It costs you nothing to list and this may lead you to fixing up the place a little bit which puts you in a better place to sell down the road or just get better tenants at higher rents.

Reach for the sky and keep your capital moving! It's all about velocity of money and money sitting around trapped in a property doesn't do much for you!