Rental Properties: When to sell?

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Rental Properties: When to sell?

Post by AerialWombat »

This question is targeted at those Bogleheads that have owned, or currently own, rental properties. This thread is not intended to debate the merits of rentals in general, I am posing the question purely from the financial aspects.

Question: What prompted you to sell your rentals? Or, under what circumstances do you intend to sell your rentals in the future?

I retired a couple weeks ago, due to the sale of one of my businesses. At this time, nearly half my net worth is locked up in real estate equity. I do not need that equity right now to live on, as I have enough in cash and bonds to last for several years. My current plan is to sell rental properties as necessary to replenish the piggy bank, which would be every 4-7 years at current property values and lifestyle burn rate. I own enough rentals to be able to do this well past my expected lifespan.

I have already taken depreciation recapture tax, capital gains tax, NIIT, costs of sale, etc., into consideration in my calculations.

Some other sell-off triggers that I've contemplated:
  • The need for long-term care arises.
  • A massive bond crash decimates my securities portfolio, causing me to not want to sell bonds to pay expenses.
  • Virgin Galactic or Blue Origin tourist flights fall below $250k in price (yes, I'm serious...see recent Antarctic trip thread).
What other triggers are worth contemplating?

Again, I don't want to debate the merits of rental properties as an asset class, that is already done quite thoroughly in other threads. Please keep this to the financial and retirement planning aspects of what would trigger a property sale for you.

As always, many thanks to this amazing community!
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
chw
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Re: Rental Properties: When to sell?

Post by chw »

One key thing to know- do you have family members in the RE business with you, or are in line to take over the business as you “age out”. I consulted to many owners in the business for many years, and that’s the key question to ponder. I saw many RE businesses last 3-4 generations, but there were always family members involved to bring along the next generation.
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Re: Rental Properties: When to sell?

Post by Watty »

AerialWombat wrote: Sun Dec 05, 2021 3:01 pm What other triggers are worth contemplating?
Even if you have a property management company you will still need to oversee them. That could be hard to do when you are older. If you have a spouse your spouse may need to manage them if you are not able to.

Tax rates could be higher in the future if there are tax law changes, or if you are married and your spouse dies and you are then filing tax returns in the higher single tax brackets.

Your estate might get the properties at a stepped up cost basis if you do not sell them but there could be tax law changes and that is not engraved in stone.

Depending on the type of property you might be able to easily sell them quickly in the current hot housing market. Buyers are also often waiving contingencies. In a bad housing market there might be price pressure but it can also take a long time to sell a property and potential buyers might be very picky about any small issue with the property. I have seen housing markets where a reasonably house could be listed for sale for six months and not sell since the only houses that were selling were distressed sales like foreclosures or estates. Having a place sit empty for months while you are trying to sell it can be real expensive.
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Re: Rental Properties: When to sell?

Post by Sandtrap »

AerialWombat wrote: Sun Dec 05, 2021 3:01 pm This question is targeted at those Bogleheads that have owned, or currently own, rental properties. This thread is not intended to debate the merits of rentals in general, I am posing the question purely from the financial aspects.

Question: What prompted you to sell your rentals? Or, under what circumstances do you intend to sell your rentals in the future?

I retired a couple weeks ago, due to the sale of one of my businesses. At this time, nearly half my net worth is locked up in real estate equity. I do not need that equity right now to live on, as I have enough in cash and bonds to last for several years. My current plan is to sell rental properties as necessary to replenish the piggy bank, which would be every 4-7 years at current property values and lifestyle burn rate. I own enough rentals to be able to do this well past my expected lifespan.

I have already taken depreciation recapture tax, capital gains tax, NIIT, costs of sale, etc., into consideration in my calculations.

Some other sell-off triggers that I've contemplated:
  • The need for long-term care arises.
  • A massive bond crash decimates my securities portfolio, causing me to not want to sell bonds to pay expenses.
  • Virgin Galactic or Blue Origin tourist flights fall below $250k in price (yes, I'm serious...see recent Antarctic trip thread).
What other triggers are worth contemplating?

Again, I don't want to debate the merits of rental properties as an asset class, that is already done quite thoroughly in other threads. Please keep this to the financial and retirement planning aspects of what would trigger a property sale for you.

As always, many thanks to this amazing community!
IMHO you have an outstanding well rounded long term financial strategy that "includes" R/E income property holdings. Given you positions, 50% in R/E equity is solid as long as the net income is profitable enough "for you".

Think of this as a 3 legged retirement financial strategy with the R/E aspect one leg in the stool.

Some things that you might consider or likely have already done:
1. Simplify your holdings. IE: 1031 SFH smaller units to multi units, if this is financially feasible. (like streamlining a "bogle" portfolio of funds)
2. Include everything in your estate planning. Make it simple for your hares.
3. Rather than wait for "triggers with immediacy, consider liquidating slower and more gradual, especially to absorb the capital gains you might pay. (although this is difficult if you have larger single buildings vs SFH R/E income property.)
4. Liquidate the lowest yielding, and least appreciating properties lst.
5. Liquidate the properties with the least capital gains lst. IE: last in lst out. LIFO.
6. Triggers could also include changes in local "Landlord Tenant Codes", zoning, rental/landlord requirements, increases in insurance and expenses, etc.
7. Triggers could also include the "money pit factor". For some reason, properties can sometimes turn into "money pits" as they age.
8. Triggers could also include changes in area demograph as a city grows and all that, so that has a negative effect on rents and clientele and so forth.
9. Triggers could also include your "feeling" (aka: business instinct) that a property has reached its maximum value and might decline for any reason.

Personally, per your questions:
1. My strategy was similar to yours.
2. Estate planning had a huge impact. My hares did not want to take over my business and/or did not have the skills and mindset to do so.

PM me as you wish.
I hope this is helpful.
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

Some things that together or combined could get me to sell:
-change in crime rate in the neighborhood, including deed fraud
-change in burdensomeness of local regulations
-hostile statements by city officials regarding property owners
-property tax hikes
-change in local laws around renting/ evictions
-change in cultural climate and attitudes toward landlords
-harassment by neighbors
-losing a trusted and capable property assistant
-serious illness

My parents own and are buy and hold investors through thick and thin, very much like Wang Lung in The Good Earth. The properties are their lives and have emotional meaning for them as well. They get aggressive pressures from realtors and tenants to sell, or from developers to do a ground lease or joint venture, which fortunately they are able to resist. They plan to have the properties pass by inheritance for tax reasons and because they do not feel the current need to sell. Plus the properties are appreciating.

One exercise I engage in with them periodically (since I’d like them to have less work and more freedom as they age and for them to benefit personally from a sellers market, which will not be around forever) is to consider each property individually and start finding the $ amount at which they say, “oh definitely, I’d sell it for that!”
Last edited by AnnetteLouisan on Sun Dec 05, 2021 5:57 pm, edited 1 time in total.
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Re: Rental Properties: When to sell?

Post by phxjcc »

I have no definite answer, and I am in a similar situation.

I have set gates/milestones, however...
Age 75: rentals sold.
Assisted Living: ditto.
$ "MAGIC NUMBER" value of properties, sell.

Those gates are getting closer, and I don't wanna.

Let us know.

My hesitancy is that SoCal RE is wacko, so FOMO is looking at me.
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Re: Rental Properties: When to sell?

Post by Jack&Warren disciple »

AerialWombat wrote: Sun Dec 05, 2021 3:01 pm This question is targeted at those Bogleheads that have owned, or currently own, rental properties. This thread is not intended to debate the merits of rentals in general, I am posing the question purely from the financial aspects.

Question: What prompted you to sell your rentals? Or, under what circumstances do you intend to sell your rentals in the future?

I retired a couple weeks ago, due to the sale of one of my businesses. At this time, nearly half my net worth is locked up in real estate equity. I do not need that equity right now to live on, as I have enough in cash and bonds to last for several years. My current plan is to sell rental properties as necessary to replenish the piggy bank, which would be every 4-7 years at current property values and lifestyle burn rate. I own enough rentals to be able to do this well past my expected lifespan.

I have already taken depreciation recapture tax, capital gains tax, NIIT, costs of sale, etc., into consideration in my calculations.

Some other sell-off triggers that I've contemplated:
  • The need for long-term care arises.
  • A massive bond crash decimates my securities portfolio, causing me to not want to sell bonds to pay expenses.
  • Virgin Galactic or Blue Origin tourist flights fall below $250k in price (yes, I'm serious...see recent Antarctic trip thread).
What other triggers are worth contemplating?

Again, I don't want to debate the merits of rental properties as an asset class, that is already done quite thoroughly in other threads. Please keep this to the financial and retirement planning aspects of what would trigger a property sale for you.

As always, many thanks to this amazing community!
Long term care needs, I think you could buy insurance for that (explore HSA? how old are you? Spouse? Children?)
Lowering the duration of your bond holdings will reduce yield but lower interest rate risk, my rentals provide great inflation adjusted income
What percentage of the equity in your real estate holding = the lump sum in cash of as Dr. Hannibal told Clarrise, "The things that he covets"?

It sounds like you want lump sums in cash for your "lifestyle burn rate" from your rentals, you can extract cash from your rentals by:

1. Borrowing against the equity
2. Selling a rental and taking a 1st or 2nd mortgage producing a large cash down payment and monthly income
3. Creating a partnership and selling interests in it for cash
4. Sell every 4-7 years and spend the net after tax bounty

BTW, I've never sold one of my rentals but let me know when those tourist flights are below $250k and I might join you ;-) !
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Re: Rental Properties: When to sell?

Post by averagelonghorn »

For you, I think the basic plan you outlined is absolutely a good one.... when you've assembled a decent rental property portfolo selling one every few years to support your spending is not a bad plan at all. (But if they keep generating cash flow, keeping them is fine too; or since you have several, keep the ones that cash flow well, sell those that are lagging.

Since you asked what others have done, here's our story based on just owning one rental property for about 17 years and then selling.

We only owned one Duplex. Originally we lived in one side and rented the other. Then we moved and rented both sides. Important fact about our rental is that one side was rented to DWs parents, who spent half the year here half back in their hometown. We charged them an amount defensable as market rent, but lower than the other side of the duplex.

We did basic upkeep but not much in the major remodel department. We painted and repaired things in the other side whenever we had tenant turnover; usually we kept tenants there for 3-4 years.

When in-laws decided to stop spending half the year here, we were faced with a decision point.... either do some fairly major renovations so we could get rents higher, or sell. In our market, rents have been going up pretty well for over a decade, but so were property taxes.... it just seemed like some decent upgrades were in order if we wanted to maximize rent. It also helped our decision that while we had always had great tenants for our 15 years of ownership, at that time we had our first set of tenants who just couldn't seem to pay rent on time.... consistently about 3 weeks late... mainly our own fault for not enforcing late fees from the first time late and we just kinda let it slide. Was not a huge deal, but enough to remind us not all tenants are as good as the many others we had.

So in the end, for us the decision to sell was basically realizing that we could take on renovations and get the property in shape to capture a good market rate, or we could cash out... we chose to cash out.
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Re: Rental Properties: When to sell?

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chw wrote: Sun Dec 05, 2021 3:10 pm One key thing to know- do you have family members in the RE business with you, or are in line to take over the business as you “age out”. I consulted to many owners in the business for many years, and that’s the key question to ponder. I saw many RE businesses last 3-4 generations, but there were always family members involved to bring along the next generation.
No, I do not. I have no heirs at all, so by age X, where X is currently undetermined, I would like to have liquidated properties while still breathing. This obviously makes it easier to pass the money on to charities when I pass.

But I’m not ready to liquidate yet — maybe in my 60s, which is 20 years away.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Rental Properties: When to sell?

Post by AerialWombat »

Watty wrote: Sun Dec 05, 2021 3:23 pm Tax rates could be higher in the future if there are tax law changes, or if you are married and your spouse dies and you are then filing tax returns in the higher single tax brackets.

Your estate might get the properties at a stepped up cost basis if you do not sell them but there could be tax law changes and that is not engraved in stone.

Depending on the type of property you might be able to easily sell them quickly in the current hot housing market.
I definitely worry about future taxes, but it would be outside forum rules to speculate on that.

No spouse.

Since everything I have will be split between two charities, I’d like to simplify my estate before death, even if that means missing the step up in basis. Plus, I do anticipate needing LTC and hospice, so that liquidity will be helpful.

All my properties are decent single family homes. I could probably sell everything within a month right now if I wanted to.

Thanks for the reply!
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Re: Rental Properties: When to sell?

Post by coynerone »

I just sold the last property in my rental "empire".
It took six years to sell them. One each year. It occurred to me after I came back from an extended trans-siberian railroad trip that I did not want the responsibilities for buildings and tenants anymore. Now that thought came up in tandem with the knowledge that I had made more than enough for retirement. I am thankful I started when I did as CA enacted statewide rent control a couple of years ago. The rent control did not have too much of a financial impact but the very strict eviction criteria that came with it was sooner or later going to be detrimental. I did great picking tenants for 22 years in general but you do pick wrong sometimes. Sometimes the "empire" strikes back as I liked to say.

1) Wanted more freedom and less commitment.
2) Had made my retirement nut.
3) Laws changed to restrict my business autonomy.
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Re: Rental Properties: When to sell?

Post by chw »

AerialWombat wrote: Mon Dec 06, 2021 1:16 am
chw wrote: Sun Dec 05, 2021 3:10 pm One key thing to know- do you have family members in the RE business with you, or are in line to take over the business as you “age out”. I consulted to many owners in the business for many years, and that’s the key question to ponder. I saw many RE businesses last 3-4 generations, but there were always family members involved to bring along the next generation.
No, I do not. I have no heirs at all, so by age X, where X is currently undetermined, I would like to have liquidated properties while still breathing. This obviously makes it easier to pass the money on to charities when I pass.

But I’m not ready to liquidate yet — maybe in my 60s, which is 20 years away.
In this situation (no heirs or partners), I would suggest cycling out(via 1031 exchange) of management intensive properties into NNN properties where you can basically just collect a rent check monthly (think major chain pharmacy or something similar). I would suggest speaking with a CPA that can assist you in the most tax efficient way to sell your buildings.

Without a heir or partner to step in for you, I would be moving into low/no management schemes sooner then later. If you should become incapacitated suddenly, you could face major issues running the business even with the best running building.
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Re: Rental Properties: When to sell?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (rental properties).
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Re: Rental Properties: When to sell?

Post by AerialWombat »

Sandtrap wrote: Sun Dec 05, 2021 3:39 pm IMHO you have an outstanding well rounded long term financial strategy that "includes" R/E income property holdings. Given you positions, 50% in R/E equity is solid as long as the net income is profitable enough "for you".

Think of this as a 3 legged retirement financial strategy with the R/E aspect one leg in the stool.
Thank you so much for your sage advice, Sandtrap. I'm always glad to seeing carrying the flag for smart real estate investing here on Bogleheads.

It's definitely just one piece of a three-legged stool for me, and the other triggers you outlined are all great considerations. Thank you!
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Re: Rental Properties: When to sell?

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AnnetteLouisan wrote: Sun Dec 05, 2021 3:41 pm ...consider each property individually and start finding the $ amount at which they say, “oh definitely, I’d sell it for that!”
This in particular is a really good point. I definitely hadn't considered that. There are definitely a couple houses that are rapidly approaching a point where I don't think they have much more room to go up, but that's obviously difficult to predict.
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Re: Rental Properties: When to sell?

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phxjcc wrote: Sun Dec 05, 2021 5:51 pm Those gates are getting closer, and I don't wanna.
...
My hesitancy is that SoCal RE is wacko, so FOMO is looking at me.
Yes, I feel the same way in each market that I'm in. Even though marketing timing is actually encouraged in real estate, it's still really hard to do and get it right, so I don't want to make it my default behavior.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Rental Properties: When to sell?

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AerialWombat wrote: Mon Dec 06, 2021 7:20 pm
AnnetteLouisan wrote: Sun Dec 05, 2021 3:41 pm ...consider each property individually and start finding the $ amount at which they say, “oh definitely, I’d sell it for that!”
This in particular is a really good point. I definitely hadn't considered that. There are definitely a couple houses that are rapidly approaching a point where I don't think they have much more room to go up, but that's obviously difficult to predict.
You know, find YOUR number. In almost every major commercial transaction, I find what it’s worth to me first. It’s just very good to orient around. Once I know my personalized number, negotiating gets a lot easier. No one likes being pressured by buyers with their own agendas, or by local prices. It’s, what would you definitely sell for? And since most of us are not under severe time pressure, we can wait. Maybe too long but that’s always the risk.
Last edited by AnnetteLouisan on Mon Dec 06, 2021 8:32 pm, edited 1 time in total.
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Re: Rental Properties: When to sell?

Post by thedayisbrave »

I have about 13 properties. I sell when the sales price I could fetch is too high to justify the cash flow that I'm getting. Essentially I ask myself the question: "If this property were listed for this price today, based on the income it brought in, would I buy it?" If the answer is no, then it's time to sell and roll it into something else. I've been selling my smaller residential and rolling into bigger commercial, and also buying bigger commercial.

Another option is, if you need the funds but don't want to sell (leave the properties to your heirs to inherit on a stepped up basis), you could do some cash out refinances. The loan proceeds are not taxable. This is how I have scaled my rental empire. That only really makes sense if rents are also keeping pace - wouldn't really make sense if your new, higher payments were not covered by rent.
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Re: Rental Properties: When to sell?

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thedayisbrave wrote: Mon Dec 06, 2021 8:30 pm I have about 13 properties. I sell when the sales price I could fetch is too high to justify the cash flow that I'm getting. Essentially I ask myself the question: "If this property were listed for this price today, based on the income it brought in, would I buy it?" If the answer is no, then it's time to sell and roll it into something else. I've been selling my smaller residential and rolling into bigger commercial, and also buying bigger commercial.

Another option is, if you need the funds but don't want to sell (leave the properties to your heirs to inherit on a stepped up basis), you could do some cash out refinances. The loan proceeds are not taxable. This is how I have scaled my rental empire. That only really makes sense if rents are also keeping pace - wouldn't really make sense if your new, higher payments were not covered by rent.
How do you quantify that threshold ? If annual rents exceed say 4% of the market value then you keep it?
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Re: Rental Properties: When to sell?

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AerialWombat wrote: Mon Dec 06, 2021 7:20 pm
AnnetteLouisan wrote: Sun Dec 05, 2021 3:41 pm ...consider each property individually and start finding the $ amount at which they say, “oh definitely, I’d sell it for that!”
This in particular is a really good point. I definitely hadn't considered that. There are definitely a couple houses that are rapidly approaching a point where I don't think they have much more room to go up, but that's obviously difficult to predict.
Fomo is a b**ch
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Re: Rental Properties: When to sell?

Post by phxjcc »

AerialWombat wrote: Mon Dec 06, 2021 7:22 pm
phxjcc wrote: Sun Dec 05, 2021 5:51 pm Those gates are getting closer, and I don't wanna.
...
My hesitancy is that SoCal RE is wacko, so FOMO is looking at me.
Yes, I feel the same way in each market that I'm in. Even though marketing timing is actually encouraged in real estate, it's still really hard to do and get it right, so I don't want to make it my default behavior.
I was just cruising at 45/45/10 for RE/Investments/Cash

And then, the RE took off.
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Re: Rental Properties: When to sell?

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BernardShakey wrote: Mon Dec 06, 2021 11:09 pm
thedayisbrave wrote: Mon Dec 06, 2021 8:30 pm I have about 13 properties. I sell when the sales price I could fetch is too high to justify the cash flow that I'm getting. Essentially I ask myself the question: "If this property were listed for this price today, based on the income it brought in, would I buy it?" If the answer is no, then it's time to sell and roll it into something else. I've been selling my smaller residential and rolling into bigger commercial, and also buying bigger commercial.

Another option is, if you need the funds but don't want to sell (leave the properties to your heirs to inherit on a stepped up basis), you could do some cash out refinances. The loan proceeds are not taxable. This is how I have scaled my rental empire. That only really makes sense if rents are also keeping pace - wouldn't really make sense if your new, higher payments were not covered by rent.
How do you quantify that threshold ? If annual rents exceed say 4% of the market value then you keep it?
No, it's more subjective. I calculate if I were to buy it at present day market value, and at the current rent (or market rent if the lease is turning over soon), would it fit into my investment objectives. For me it has to be cash flow positive, and not only that, but ideally $200-$300 in positive cash flow per month after accounting for all expenses. If it's going to be break even on the cash flow or only slightly better, time to sell and reinvest my funds elsewhere.

This is definitely not a rule, it's just what I do. You also have to consider what other investment alternatives are out there, the potential risks, etc.
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Re: Rental Properties: When to sell?

Post by BernardShakey »

thedayisbrave wrote: Wed Dec 08, 2021 10:57 am
BernardShakey wrote: Mon Dec 06, 2021 11:09 pm
thedayisbrave wrote: Mon Dec 06, 2021 8:30 pm I have about 13 properties. I sell when the sales price I could fetch is too high to justify the cash flow that I'm getting. Essentially I ask myself the question: "If this property were listed for this price today, based on the income it brought in, would I buy it?" If the answer is no, then it's time to sell and roll it into something else. I've been selling my smaller residential and rolling into bigger commercial, and also buying bigger commercial.

Another option is, if you need the funds but don't want to sell (leave the properties to your heirs to inherit on a stepped up basis), you could do some cash out refinances. The loan proceeds are not taxable. This is how I have scaled my rental empire. That only really makes sense if rents are also keeping pace - wouldn't really make sense if your new, higher payments were not covered by rent.
How do you quantify that threshold ? If annual rents exceed say 4% of the market value then you keep it?
No, it's more subjective. I calculate if I were to buy it at present day market value, and at the current rent (or market rent if the lease is turning over soon), would it fit into my investment objectives. For me it has to be cash flow positive, and not only that, but ideally $200-$300 in positive cash flow per month after accounting for all expenses. If it's going to be break even on the cash flow or only slightly better, time to sell and reinvest my funds elsewhere.

This is definitely not a rule, it's just what I do. You also have to consider what other investment alternatives are out there, the potential risks, etc.
Yes, and my question was more along the lines of your last sentence. One needs to determine the value of alternatives. If I have a $1M piece of property that pulls in cash (net of expenses) of $32,000 a year, can I do better elsewhere? Assume my available equity is $800k, I could sell and invest the $800k. Anything over a 4% return and the invested sum is better. Of course there are lots of other factors but you get the idea.
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Re: Rental Properties: When to sell?

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Duplicated
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Re: Rental Properties: When to sell?

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Wricha wrote: Thu Dec 09, 2021 2:32 pm I have owned commercial real estate for well over 20 years. Over time we have built (NNN) long term (14+ Years) leases with very strong clients. Five years ago I hired a management company (which has been good). The commercial real estate makes up 25% of my net worth and 60% of my cash flow (which covers 100% of expenses). So it is unlikely, that selling is going to be a great financial move. The term of the existing loans comes due in the next 4 years at which time I will have 67% equity in the buildings. If I keep the buildings till the leases come due I will own the buildings 100% with substantial cash flow but I will be 82. My plan is to hold the real estate until the loans come due and see what rate I can refinance. If the long term rates are favorable I may keep them but my guess I will sell. Given your age I would keep the real estate going until they become too much work. Cash flow often over looked here, but it is what I gauge my financial success on (not on net worth).
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Re: Rental Properties: When to sell?

Post by DarkHelmetII »

I owned a condo and sold given recent uptick in prices and laws that appeared to disfavor landlords
Piper59
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Re: Rental Properties: When to sell?

Post by Piper59 »

Aerial Wombat - I wanted to thank you for posting this as I'm still on the accumulation side of the equation and frankly haven't given too much thought on "How" to unwind this thing when the time comes. Made me think about it.

It's been fun, stressful and rewarding building it up.
coynerone
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Re: Rental Properties: When to sell?

Post by coynerone »

Makes sense to think about the exit now. Never get in to something that you are not prepared to get out of. More success that way.
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AnnetteLouisan
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
TheLuckBox
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Re: Rental Properties: When to sell?

Post by TheLuckBox »

AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
What is the issue they are having? Just not knowing whether it's the right time to sell? If they need cash they can look at doing a cash-out refi on some of the properties. Usually you can go up to 75% loan to value.
coynerone
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Re: Rental Properties: When to sell?

Post by coynerone »

Then let the properties go to the beneficiaries with a stepped up basis and they can decide to sell or not with the stepped up basis in hand.
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AnnetteLouisan
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

TheLuckBox wrote: Thu Apr 21, 2022 11:25 am
AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
What is the issue they are having? Just not knowing whether it's the right time to sell? If they need cash they can look at doing a cash-out refi on some of the properties. Usually you can go up to 75% loan to value.
The issue is multifaceted:
-how much longer can they do the work needed to manage the properties? (Yes they have handy people etc)
-How much longer do they want to manage them, and are these desires congruent with their actual ability to manage them? (They seem to like doing it but at late 80s it seems unreasonable).
-despite not needing the money, should they sell and upgrade to finally enjoy some fruits of their efforts?
-if this is a good time to sell, what price should they set?
-should they sell some but not others? Such as sell only rentals or only non-income producing properties?
-given step up in basis considerations, isn’t it wiser not to sell? (Current plan is not to sell for this reason, and wanting the rental income)
-who will manage the properties once they are no longer able? Is there an appetite for property management companies?
-will emotional attachment to the properties (by them or us “children”) prevent them or us from selling when it makes economic sense to do so?
-what will happen to the properties if their health declines or they become hospitalized or in assisted living but they continue to own?
-if they sell, since they don’t need the money in the near term, what will they do with it?
-does it make sense to sell the adjacent ones as a package (would that command a higher price?)
-will renting get more fraught given tenant friendly legal changes?
-will the offspring have to spring into action to assist when they have no experience or interest in this stuff?
-are potential costs building with these properties that need to be addressed (structural or other?)
-Is the proper standard to hold forever and only sell when you need the money?
-if they sell, will the values continue to increase causing regret for selling too soon?
-do any of the offspring intend to live in or use those properties?

I’m not asking for answers to these. There are no answers. But these are the issues swirling around.(if someone has a magic solution I’m not going to shut my ears, but it’s complicated.)
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Re: Rental Properties: When to sell?

Post by PeninsulaPerson »

AnnetteLouisan wrote: Thu Apr 21, 2022 11:34 am
I’m not asking for answers to these. There are no answers. But these are the issues swirling around.(if someone has a magic solution I’m not going to shut my ears, but it’s complicated.)

Are your parents expecting you to help them figure this out?

Will they/do they listen to you?

Will your siblings/potential co-heirs help you share what sounds like a possible large & complicated inheritance and a bit of a burden getting answers to those questions?

What happens if nobody does anything until "something changes" (as they say in the various elder businesses!)?

You have mentioned that you're a lawyer, so you are probably pretty aware of the paperwork your parents should have - wills and etc. and etc. Have they done appropriate estate planning? What about the 5-year look-back? Will properties need to be sold in a rush to pay for nursing home care?

Hope it's not the mess in the moment that it sounds like it could be! If it's worth your while (emotionally or financially) and you choose to get involved, that's one thing. If it's something you dearly wish you could walk away from, walk away! The story might have a sadder-than-necessary ending, but if your folks won't decide or do anything, that might be how it goes! (Don't ask me how I know!)
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

PeninsulaPerson wrote: Thu Apr 21, 2022 12:19 pm
AnnetteLouisan wrote: Thu Apr 21, 2022 11:34 am
I’m not asking for answers to these. There are no answers. But these are the issues swirling around.(if someone has a magic solution I’m not going to shut my ears, but it’s complicated.)

Are your parents expecting you to help them figure this out?

Will they/do they listen to you?

Will your siblings/potential co-heirs help you share what sounds like a possible large & complicated inheritance and a bit of a burden getting answers to those questions?

What happens if nobody does anything until "something changes" (as they say in the various elder businesses!)?

You have mentioned that you're a lawyer, so you are probably pretty aware of the paperwork your parents should have - wills and etc. and etc. Have they done appropriate estate planning? What about the 5-year look-back? Will properties need to be sold in a rush to pay for nursing home care?

Hope it's not the mess in the moment that it sounds like it could be! If it's worth your while (emotionally or financially) and you choose to get involved, that's one thing. If it's something you dearly wish you could walk away from, walk away! The story might have a sadder-than-necessary ending, but if your folks won't decide or do anything, that might be how it goes! (Don't ask me how I know!)
Yes, they both have estate plans fortunately. But they do seek my input on occasion, mostly just to make conversation (they listen to me but don’t take direction from me). But ultimately, it’s up to them. They are long divorced and barely on speaking terms. They do not have assisted living or the like lined up although my mother has LTCI. They don’t plan to utilize the five year look back / Medicaid (although they have no objections to collecting social security). I can’t really walk away from this situation, nor do I want to given my parents ages (meaning I care about them and they can use the help). Properties would not need to be sold in a rush to pay for nursing home care. But I don’t think they should wait until they are infirm since any move would be more difficult for them then.

But I don’t want to hijack this thread - I just listed considerations about selling that could apply to many owners of rental properties.
PeninsulaPerson
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Re: Rental Properties: When to sell?

Post by PeninsulaPerson »

AnnetteLouisan wrote: Thu Apr 21, 2022 12:34 pm
But I don’t want to hijack this thread - I just listed considerations about selling that could apply to many owners of rental properties.

Sorry if I hijacked!

I hope it works out easily for you, AnnetteLouisan!
WhyNotUs
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Re: Rental Properties: When to sell?

Post by WhyNotUs »

AerialWombat wrote: Sun Dec 05, 2021 3:01 pm
Question: What prompted you to sell your rentals? Or, under what circumstances do you intend to sell your rentals in the future?
Any investment property that I have been involved in came with two exit ramps-
1. Hit an upper price target that was set when we bought it
2.The local circumstances that made it worth investing in changed

We have left some money on the table due to 1. but have been adherents of the saying, "pigs get fat and hogs get slaughtered".
I own the next hot stock- VTSAX
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Re: Rental Properties: When to sell?

Post by Carefreeap »

AnnetteLouisan wrote: Thu Apr 21, 2022 11:34 am
TheLuckBox wrote: Thu Apr 21, 2022 11:25 am
AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
What is the issue they are having? Just not knowing whether it's the right time to sell? If they need cash they can look at doing a cash-out refi on some of the properties. Usually you can go up to 75% loan to value.
The issue is multifaceted:
-how much longer can they do the work needed to manage the properties? (Yes they have handy people etc)
-How much longer do they want to manage them, and are these desires congruent with their actual ability to manage them? (They seem to like doing it but at late 80s it seems unreasonable).
-despite not needing the money, should they sell and upgrade to finally enjoy some fruits of their efforts?
-if this is a good time to sell, what price should they set?
-should they sell some but not others? Such as sell only rentals or only non-income producing properties?
-given step up in basis considerations, isn’t it wiser not to sell? (Current plan is not to sell for this reason, and wanting the rental income)
-who will manage the properties once they are no longer able? Is there an appetite for property management companies?
-will emotional attachment to the properties (by them or us “children”) prevent them or us from selling when it makes economic sense to do so?
-what will happen to the properties if their health declines or they become hospitalized or in assisted living but they continue to own?
-if they sell, since they don’t need the money in the near term, what will they do with it?
-does it make sense to sell the adjacent ones as a package (would that command a higher price?)
-will renting get more fraught given tenant friendly legal changes?
-will the offspring have to spring into action to assist when they have no experience or interest in this stuff?
-are potential costs building with these properties that need to be addressed (structural or other?)
-Is the proper standard to hold forever and only sell when you need the money?
-if they sell, will the values continue to increase causing regret for selling too soon?
-do any of the offspring intend to live in or use those properties?

I’m not asking for answers to these. There are no answers. But these are the issues swirling around.(if someone has a magic solution I’m not going to shut my ears, but it’s complicated.)
This is a great list!

Ironically I had this discussion with my optometrist on Wednesday. She's my age (60)and her mom is in hospice. Her plan was to sell one troublesome property when her mom dies but I advised her to take a hard look at selling all of them. With prop 19 the properties are going to be reassessed. They are old and 50 miles away. Her remaining sibling has health issues, she has health issues and she doesn't need a second "business". I told her she needs to simplify enjoy her life!
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AnnetteLouisan
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

Carefreeap wrote: Fri Apr 22, 2022 2:08 pm
AnnetteLouisan wrote: Thu Apr 21, 2022 11:34 am
TheLuckBox wrote: Thu Apr 21, 2022 11:25 am
AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
What is the issue they are having? Just not knowing whether it's the right time to sell? If they need cash they can look at doing a cash-out refi on some of the properties. Usually you can go up to 75% loan to value.
The issue is multifaceted:
-how much longer can they do the work needed to manage the properties? (Yes they have handy people etc)
-How much longer do they want to manage them, and are these desires congruent with their actual ability to manage them? (They seem to like doing it but at late 80s it seems unreasonable).
-despite not needing the money, should they sell and upgrade to finally enjoy some fruits of their efforts?
-if this is a good time to sell, what price should they set?
-should they sell some but not others? Such as sell only rentals or only non-income producing properties?
-given step up in basis considerations, isn’t it wiser not to sell? (Current plan is not to sell for this reason, and wanting the rental income)
-who will manage the properties once they are no longer able? Is there an appetite for property management companies?
-will emotional attachment to the properties (by them or us “children”) prevent them or us from selling when it makes economic sense to do so?
-what will happen to the properties if their health declines or they become hospitalized or in assisted living but they continue to own?
-if they sell, since they don’t need the money in the near term, what will they do with it?
-does it make sense to sell the adjacent ones as a package (would that command a higher price?)
-will renting get more fraught given tenant friendly legal changes?
-will the offspring have to spring into action to assist when they have no experience or interest in this stuff?
-are potential costs building with these properties that need to be addressed (structural or other?)
-Is the proper standard to hold forever and only sell when you need the money?
-if they sell, will the values continue to increase causing regret for selling too soon?
-do any of the offspring intend to live in or use those properties?

I’m not asking for answers to these. There are no answers. But these are the issues swirling around.(if someone has a magic solution I’m not going to shut my ears, but it’s complicated.)
This is a great list!

Ironically I had this discussion with my optometrist on Wednesday. She's my age (60)and her mom is in hospice. Her plan was to sell one troublesome property when her mom dies but I advised her to take a hard look at selling all of them. With prop 19 the properties are going to be reassessed. They are old and 50 miles away. Her remaining sibling has health issues, she has health issues and she doesn't need a second "business". I told her she needs to simplify enjoy her life!
Believe me I’ve been telling them to sell since 2005, when I read the unheralded book, The Coming Crash in the Housing Market. I’m not a fan of real estate although it has its moments. Fortunately they are in good health and at this point none of it’s up to me. But I agree, I’m a big believer in keeping things simple and manageable, and real estate can be one big thorny tangled mess.
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Re: Rental Properties: When to sell?

Post by barberakb »

Question: What prompted you to sell your rentals?

I haven't sold any yet. I plan to leave them to my kids and maybe charity.


Or, under what circumstances do you intend to sell your rentals in the future?

I don't plan to sell any of mine. I could make a nice profit on some of them but I am still working and don't need the $. I also would rather have a paycheck for life instead of 1 large paycheck upfront.

I may sell at one point but it would probably be to do a 1031 exchange.

I may also sell some in retirement if I needed $ for any of the following things. Expensive travel for me and my family, unexpected expenses, to do a 1031. Also if I die before my wife she would probably sell as I do most of the work for the properties.

I might also sell if the tax laws change or if 1 of the states I invest in changes from a landlord friendly to a tenant friendly state.
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Re: Rental Properties: When to sell?

Post by barberakb »

AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
Only some of them???
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AnnetteLouisan
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Re: Rental Properties: When to sell?

Post by AnnetteLouisan »

barberakb wrote: Fri Apr 22, 2022 4:55 pm
AnnetteLouisan wrote: Thu Apr 21, 2022 9:22 am We have this issue in my family. My parents accumulated properties from the 1970s to 1990s and are now mid to late 80s. All the properties increased significantly in value and some produce income. They have no securities. They don’t want to sell but we all know there can be long periods when it’s tough to sell.
Only some of them???
Yeah. They live in some of them, use one as a country house, and one is non residential use they might build on. But the rest produce income. It’s not as extensive as it sounds. There’s just no way to say it to minimize it, tho I try. Not every home is a mega mansion to say the least.

I’m the executor in both cases, so I won’t be Evelyn Manley in ten years (robbed of a multimillion dollar inheritance), living off SS and fear. Assuming I make it ten years (asthma worsening).
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