Selling Income Producing Properties
I realize this is a "pandora's box", and I certainly know what opinions are compared to; but many of my investing friends either don't hold their properties at all, or state that they don't hold even their income producing properties for more than 7 years.
It seems to me that everyone on this forum want to create cash flow, and asset value. Why would you sell a property (and have to recapture depreciation and pay taxes on the profit), unless of course your property is a loosing proposition.
All options are welcome.
A "fairley" newbie
Ralph
I did a rehab duplex that was cash positive $600 a month. I paid off the note early and looked at my choice.
1. $900 monthly cash flow.
2. Sell and collect 110K in equity that I had after repairs and use the equity to fund my next deal.
I chose #2 because $900 is very little in real cash flow for my lifestyle and 110K right now put me on to my next deal.
[addsig]
DVTFG,
If you are into number crunching, calculate the Internal Rate of Return for varying holding periods for a typical investment property you own. Do Return on Equity calculations too.
You may discover that the IRR rises quickly in the early years of ownership and plateaus or even peaks at some point. That point might be at three years of ownership. That point might trigger your exit strategy.
Same with Return on Equity calculations. As you pay down your mortgage, as your property appreciates in value, the cash flow earned as a ratio of your equity will likely decline. There may be some percentage ROE that you will want to use to trigger your exit strategy. The trigger may happen at around the seven year mark.
If you want to maximize your wealth accumulation potential, these triggers might suggest exit points for you. If the market is favorable for selling, you might want to sell and exchange into something else that upgrades your portfolio or increases your cash flow.
I have reached a point in my life where cash flow (current income) is more important to me that accumulating wealth. Having a few free and clear properties will maintain my lifestyle for my lifetime. So, since my focus is on paying off mortgage loans, I don't always sell a good cash flow producer until I have a compelling reason to do so. A neighborhood changing for the worse, the property is becoming maintenance intensive, cash flow is marginal or close to breakeven are all compelling reasons to sell. You may come up with others.
if you cash out you can move on to better deals because you have a lager cash base in rei "cash is king" it is just easier to make good deals with cash you can move faster on a deal, sellers know fin. is not a problem if you are buying and one guy has to fin. and the other has cash or a large cash base which do you think they will go with on the same deal......kenmax......