All Forum Posts by: Mark Ferguson

Mark,

My answer depends on what your specific investment goals are.  What are they?

Maximize return? Maximize cash flow?

If they are to maximize cash flow, then you must choose among alternatives...Will the property you're looking at yield a higher amount of cash flow than your current properties?  If so, before you consider selling, consider cash-out refinancing and buying the new properties with the banks money (you pay no taxes).

I never sell a cash flowing/appreciating asset unless (1) your neighborhood is turning south and you are unable to attract well-qualified tenants or (2) you are unable to cash-out refi and must sell to buy larger or more property.  That said, I would ONLY sell at the peak of the market (and FYI you are about 6-9 months past peak in Colorado).

Also, if you did your homework initially and bought only properties that provided cash flow and are located in an area with strong population and job growth, your properties will likely appreciate.  If that is the case, you will be looking at a real estate market cycle curve which is a sideways "S" with the recessionary periods at a higher level each cycle (lasts an avg 5-7 yrs.  Therefore, it is very likely that if you sell, you will not be able to buy at the same prices you had for a very long time, if ever.

When you say "my quality of property is decreasing" what do you mean?  If you're compromising your investment criteria, I'd recommend not doing that.  Identify a specific property type and niche and exploit that fully, becoming an expert.  If you have trouble finding deals meeting that criteria it is better to look in another area, than to compromise your investment criteria.  That's when you get the deadbeat tenants, then the downward spiral begins...

I wouldn't 1031 exchange.  It is unlikely that you will be able to find a good deal that you'd buy normally under the pressure and time limits you will have.

Best of luck.

-jon

I have some SFR properties here in SoCal where I live and in Phoenix, AZ. Similar to you, bought between 2009-2012 and have doubled and some even tripled in price such that the cash flow is now low compared to their market price. Like you, I went out of state in search of better cash flow. For what it is worth, having both out of state and local SFR rentals, I am now selling my out of state rentals and holding my local rentals. On paper, the Phoenix properties "should" cash flow much better than my local ones, but in reality they don't. In reality I've spent the last 5+ years getting completely ripped off by various property managers and contractors ... and I was a fairly seasoned RE investor when I bought out of state, and bought SFRs in B neighborhoods (non ghetto). I just severely underestimated how hard it was to find good, honest boots on the ground and manage rentals from out of state. I've been through 7 PMs and more contractors than I can count ... so, this is not 1 or 2 incompetent and/or crooked folks we're talking about here. It was so bad that one year I managed to negative cash flow a house I owned outright (no mortgage) ... think about that one for a bit. My only saving grace is that I bought low and had stellar appreciation, which I doubt you or I would could or will reproduce in the next few years given where we are in this part of the cycle. I choose to pay my taxes on the out of state sales and either deploy the funds elsewhere (stocks if they fall far enough) or back in REI if we have another major correction in housing that makes local properties look attractive again. Something to consider for a different perspective from somebody who has tried to do what you are considering ...

I remember when the Phoenix market doubled in 4 years, about 10 years ago. I really wish I had sold all my properties at that time. I don't know anything about the Colorado markets, but that kind of appreciation is not sustainable, and what goes up does actually come down, despite the usual euphoria to the contrary.

Geez Mark,  where did that equity come from?  You'll be killing the GOLDEN GOOSE.  You won't be the first or the last to do so.  Bye bye future appreciation equity.  Hello three more tenants, toilets and trash for the possibility of getting my money handed BACK to me in slow monthly installments.

Hi @Mark Ferguson

I have invested in the Mountain West (Idaho) and in Jacksonville over the years.  If you are considering Jacksonville, @Benjamin Pekarek gave some sage advice above when he said you need to be on the ground or have someone in place you absolutely trust.  I have found the property taxes are lower in Jacksonville and the rent ratios are better than Idaho, but the returns have comes with a lot more headaches, particularly when it comes to property management.  Just something to consider.  Good luck on whatever you decide to do.  

Thank you Nathan! Property management is a key component. 

I think you might want to sit tight for a bit with your current portfolio  of properties. Explore other markets but hold on to what you  have for a bit and let things continue to develop here before you make any moves of liquidation.

You currently own rentals in a market that has:

1) Has steady appreciation of equity

2) Has steady appreciation of rents

These are what everyone else on these boards dream of, not really something that anyone should be running away from. Colorado is only going to keep being a place people want to move to which is what gave you  the benefits you've reaped so far, that isn't going to change drastically. There may be some differences in rates of appreciation of equity and differences in rates of rental increases over the short term, but not over the long term. 

Everything you own is only going to become more valuable and cash flow is only going to increase. That's a good investment of your money!

Good discussion @Mark Ferguson.  I am considering doing the same thing.  Hard to find value in anymore in my market as well.

On your last podcast I thought you mentioned refinancing 8(?) of your properties with your guest?  Do you plan to go through with those refi's?  Just curious.  Thanks!

Hi Mark,

Enjoyed reading this thread as I am newer to the business and only have two sfh rental properties in Denver.  We may be moving for other reasons but in the same boat trying to figure out what to do.   Another thought we have had is to sell one of the properties with owner financing for the down payment for our trusted renters.   We could then have a portion of the equity to buy more properties in a new area but still getting cash flow for the next 5 to 10 years from the property.   Not to mention if it doesn't work out we still have the lien on the property.   Definitely will be challenging to start in a new area finding contractors and property managers to trust...but hopefully worth the cashflow in the end.   Still hard to leave a stable market with great rents.  

Good Luck in your journey to 100!

@Mark Ferguson Im not against selling properties and redeploying the cash someplace else, as I have often done this. However you have several market advantages where you live.  The main advantage is you know your market. Just because you have had a huge run up doesnt mean that run up will not continue. (Or maybe it wont, you have again knowledge of your market).  We all always think the grass is greener someplace else...and it usually isnt.  The other advantage you have where you are is the ability to collect commissions on your properties. So you are going to lose that 2.5-3% on an out of state property.