Let Mr. Market dictate whether we sell or not?

[hotwired]

Right now we're sitting pretty good. DW and I 55, work 3-5 hours a week, our investment portfolio would give us 60K using 4% SWR, our rental properties give us 70-110K depending on how 'capex happy' we get.

So we started with 12 properties, doing pretty well with the sales. down to our last 4 best properties. We just sold a 7 unit for 345K that started as an 8 unit we bought 10 years ago for 170K. So it looks like this is a good time to sell 1 or more of the other 4. But if market conditions were removed (i.e. if we thought we could get the same amount adjusted for inflation 5 years, 10 years down the road as we can today), then we'd hold for at least 5-7 more years. What's making us consider selling next year is "Holy makeral...will we ever see prices like this again??!!"

If we sell for 90% of asking price, we'd have enough to take 80K with SWR 4% plus have about half mill "in reserve".

Love to hear your thoughts! It's a decision we've got to make but I would love to hear some side thoughts that I haven't thought of yet.

Thank you all!!

 

[twaddle]

If you sell, and prices keep going up for years, will you regret it?

Do you have real estate (or other real assets) in your asset allocation plan?

Do you have a plan on how to redeploy the cash?

 

[Montecfo]

I think your larger risk is a prolonged recession which very likely would adversely affect the market for your properties.

Higher rates will also not help.

It seems you might have more downside risk than upside to me, given markets and your stage.

But your results may vary

 

[Onward]

Have you considered doing 1031 exchanges into Delaware Statutory Trusts?

 

[OldShooter]

... if market conditions were removed ...

I suggest that you viciously suppress any thinking that follows such a statement.

More to the point: What is the purpose of these assets? Buying a Cessna Citation jet?The fun you might have binging on charitable donations? Being part of your estate's bequests? As the cat told Alice when she asked: "Would you tell me, please, which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat.

One general observation, an illiquid asset is not well-suited to many possible purposes. A charity receiving it may decide to get rid of it at a rock bottom price. A son or daughter receiving it in an estate might not have the ability or interest to manage it, hence another fire sale. Then, just to thicken the soup, tax advantages of donating an appreciated asset and the basis step-up on death are also considerations.

 

[hotwired]

It's amazing you say that. I JUST YESTERDAY learned about that. I've known for years what a 1031 exchange was but NOT that. The "company" I ran into was 1031exchange.com (big surprise!) But turns out despite the hokey website URL they're pretty established. There's a guy named Ian Appeltio (sp) who created https://www.therealestatecrowdfundingreview.com/ which really does a deep dive into the 100 or so CFRE companies out there. I have deals in about 6-7 but no 1031's yet.

But this is sounding better and better.

 

[hotwired]

I suggest that you viciously suppress any thinking that follows such a statement.

More to the point: What is the purpose of these assets? Buying a Cessna Citation jet?The fun you might have binging on charitable donations? Being part of your estate's bequests? As the cat told Alice when she asked: "Would you tell me, please, which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat.

One general observation, an illiquid asset is not well-suited to many possible purposes. A charity receiving it may decide to get rid of it at a rock bottom price. A son or daughter receiving it in an estate might not have the ability or interest to manage it, hence another fire sale. Then, just to thicken the soup, tax advantages of donating an appreciated asset and the basis step-up on death are also considerations.

Great answers all around, thank you.

The purpose ... that's a good question. I suppose the original purpose of buying apartment buildings was to "grab the reins of at least part of our finances after the vagaries of the financial crisis. And to a large extent that's still the purpose. I mean the more money we have, the more often I wake in the middle of the night with these insights as to how little control we have over the financial markets. I suppose the fact that the country has basically "outlawed evictions" ought to make me reconsider how much control owning a building gives us, but the illusion of control doth persist despite.

We do get $2 income from the equity in our buildings vs. $1 we'd be able to take from the same amount if we sold and put it into paper assets (roughly, not cut in stone but we cash flow about 10% or more vs. the 4% SWR) and we have zero mortgages so we also have the currently unused ability to yanks a ton of equity out.

I think really it does boil down to making a decision about what we think the future holds in terms of pricing. I mean it's easier to sell, put in cash and ride out the next crash then deploy than to be stuck with illiquid depressed assets later.

 

[calmloki]

We are 70/71 and have been doing rentals since the 80's. Got up to 54 units and thought we would be getting out of them a place per year starting just about at -oops - the housing crisis time. Kept renting and have managed to divest of some - now down to 27 doors. Of interest to us is the fact that our total rents received (at least up to the 9-unit we sold last year) managed to stay about the same. The current market value of places is easily double what it was, so we look at what we sold for and current value of those places and gulp.

Taxes. Wowsers. All that nice depreciation we took? now it's profit and the state and feds want their chunk. And how about an additional 3.8% for NIIT? We are kid free and don't want to keep managing the places, nor stick anyone with rentals just to avoid taxes through a stepped up basis. Delaware Trust? I got no trust. So we have paid big taxes and we have carried contracts, a nice way to earn better than CD income.

I think property prices are at a peak with interest at the lowest I've seen in my life and I think going back a hundred years or so. Who knows what a dollar bill will be worth in ten years though, so a big sale now may feel like a giveaway in a decade. No one gets out alive - good luck with your decision.

 

[chassis]

I see real estate prices being firm for the foreseeable future, let's say a 5 year window. Beyond that my crystal ball loses reception. It could be firm beyond the 5 year horizon.

You have time to consider whether or not to see. I don't see a drop in prices coming, there is a fundamental tightness of supply in the US housing market at this time.