Sell apartment buildings or keep forever?

[hotwired]

Anyone struggling with the decision on whether to sell your rental properties or not as you get near retirement? We have had some interest.

We've had our properties for about 10 years, and sales prices would give us around a 20% or more annual return on money invested, and leave us with 25% more in money than we need for "safe withdrawal rate" of 3.5%.

But the money we have in our buildings seemingly will always outperform the money we'd put in our investments, though nothing is for sure. (i.e. our $$$ staying in buildings gives us around 10% give or take, plain cash flow, not including depreciation benefits, mortgage paydown, possible appreciation, etc.) but when we sell and put that cash in our 60/40 ish investment porfolio,
I don't want to withdraw more than 3.5% (Based on the supposed SWR of 4% wiht a little cushion).

I just find myself really "hemming and hawing" and "on the fence". On one hand, if the MARKET says SELL, you SELL, but on the other hand, these buildings are solid, have ten years of us constantly upgrading, and represent only 50% of our net worth. In other words our eggs aren't all in this basket.

We also want to be free to travel. We can do that and still "manage from the road" but it's a little more scary and units might have to sit vacant from time to time. My wife would prefer to be done with them no later than age 62 (54 now). Lots of thoughts here.

Not looking for someone to tell me what to do, just looking for different ways to look at it. As many perspectives as possible. There's always the "hire a manager" but that's one of those things that sounds so simple and great on paper that's MUCH more difficult to pull off and still make money than it sounds.

Thank you!

[Montecfo]

Congrats, these sound like desirable, well managed properties. Currently market dynamics favor apartments, though each market is different. I think your risk is a hard recession reducing demand. That could leave you more motivated to sell at a time when values are down substantially.

50 % of net worth is a lot. If I had 50 pct of my net worth even in a highly liquid stock investment, I would receive the very sound advice that that was far too much. Are your properties in the same geographic area? Do you have notes on them? If yes to either your risk is heightened.

I think another question is: what was your objective when you made the investment, and your expected time horizon?

Full disclosure: I do not own any myself except through REITS, but have had friends and family lose their shirts in soft markets.

[corn18]

I would sell them because I don't want to have to work in retirement. In fact, that's the very opposite of retiring.

[Scrapr]

Look for posts by @calmloki. He is a longtime rental investor and looking for a way out.

[pb4uski]

Quote:

Originally Posted by hotwired .... represent only 50% of our net worth. ...

I would sell principally because of the concentration risk... you have 50% of your net worth invested in a single geographic area and in a single property type. Think Flint, Michigan.

Would you be comfortable having 50% of your net worth in a single individual stock? I wouldn't.

The other thing is that property require periodic attention when things go wrong, tenant turnover, etc. that is difficult to do from afar and can suck up a lot of time. We had some issues with my Mom's single-tenant commerical rental property last year that sucked up a lot of time and money... but luckily, nothing this year... but if I had been traveling last year I probably would have had to interupt my travels and return home to deal with it.

[OldShooter]

Would you buy them today at the current price? Look up "The Endowment Effect."

[SumDay]

Sell 'em. Thank us later.

[SmallCityDave]

Simple question but no simple answers, I've been trying to figure this out for myself.


I have a few rentals they are worth just over twice what I have into them, they give me anywhere from 10-15% back every year plus appreciation, my thoughts as of today is start selling them one at a time once I start getting SS.


The fees will be brutal between taxes, deprecation recapture, commissions and repairs for sale it will take a good chunk of what we've worked so hard for and instead of the 10-15% I'll get 3.5%.


Perhaps it's better to turn it over to a property manager and just have a little bit of oversight?

[SmallCityDave]

Quote:

Originally Posted by corn18 I would sell them because I don't want to have to work in retirement. In fact, that's the very opposite of retiring.

Very simple answer but not terribly logical, I don't know of too many people that "want" to work in retirement but is it worthwhile to work a little for a big return. It's not a question of make $5k per month working or $5k without any work.



According to my "back of the napkin" calculation I'm making 3x more working on my rentals an hour a week than I project the SWR of 4%, in other words I'd rather work 4 hours a month making $9k a month than not work and make $3k.

[SmallCityDave]

Quote:

Originally Posted by OldShooter Would you buy them today at the current price? Look up "The Endowment Effect."

Dave Ramsey makes that same argument but I'm not sure it applies in this situation, we bought 3 homes in the last 18 months I would not buy any of them at today's prices but I'd buy them all again at the same price.

[pb4uski]

Quote:

Originally Posted by SmallCityDave Very simple answer but not terribly logical, I don't know of too many people that "want" to work in retirement but is it worthwhile to work a little for a big return. It's not a question of make $5k per month working or $5k without any work. According to my "back of the napkin" calculation I'm making 3x more working on my rentals an hour a week than I project the SWR of 4%, in other words I'd rather work 4 hours a month making $9k a month than not work and make $3k.

But will you want to do it when you are 75? or 80 or 85 or 90?

[SmallCityDave]

Quote:

Originally Posted by pb4uski But will you want to do it when you are 75? or 80 or 85 or 90?

Good question and I don't know the answer, maybe hire a property manager and have a little oversight?

The fees of selling really make it hard to justify if you are strictly looking at the numbers.

[pb4uski]

By fees do you mean depreciation recapture and capital gains tax?

[SheitlQueen]

If you decide to keep them, why not hire professional management so you don't have to deal with them when you retire? Yes it costs money, but well worth it.

[SmallCityDave]

Quote:

Originally Posted by pb4uski By fees do you mean depreciation recapture and capital gains tax?

Yeah plus commissions, closing costs & repairs to sell it adds up quickly.

[jfn111]

I helped some clients buy a FSBO that was a rental house. The owner came and showed us the house himself. He was 99 years old. He decided it was time to simplify his life.

[NgineER]

Quote:

Originally Posted by Scrapr Look for posts by @calmloki. He is a longtime rental investor and looking for a way out.

+1

If your properties are performing well, you could probably reduce your interest rate and pull out some equity and put in the market to shift your asset allocation from 50/50 RE/Stocks to a more balanced situation.

[corn18]

Quote:

Originally Posted by SmallCityDave Very simple answer but not terribly logical, I don't know of too many people that "want" to work in retirement but is it worthwhile to work a little for a big return. It's not a question of make $5k per month working or $5k without any work. According to my "back of the napkin" calculation I'm making 3x more working on my rentals an hour a week than I project the SWR of 4%, in other words I'd rather work 4 hours a month making $9k a month than not work and make $3k.

Good point. There sure as heck isn't anything I can find that returns 10%-15% from a risk adjusted portfolio. If I had that much rental income coming in right now, I would have already retired. I'd say as long as you can live the lifestyle you want, keep them.

[Sunset]

Quote:

Originally Posted by SheitlQueen If you decide to keep them, why not hire professional management so you don't have to deal with them when you retire? Yes it costs money, but well worth it.

But then, they make a lot less profit due to the management fees and inflated repair costs, plus easily get lower quality tenants which result in future problems.

[Sunset]

Quote:

Originally Posted by hotwired Anyone struggling with the decision on whether to sell your rental properties or not as you get near retirement? We have had some interest. .... We also want to be free to travel. We can do that and still "manage from the road" but it's a little more scary and units might have to sit vacant from time to time. My wife would prefer to be done with them no later than age 62 (54 now). Lots of thoughts here. ...

OP - You wife is smarter than you think.

She has realized if you sell the rentals at age 63 or higher, you will likely have a huge profit and income level.

Besides the normal tax you are expecting from it, you will also possibly incur the NITT tax of an extra 3%, and the Medicare extra payment which will last a year and could more than double the cost. (IRMAA)