Mendell Gosnell breaks down when to sell or rent an investment property, weighing market inventory, ROE and ROI against your risk tolerance and goals. He covers tax strategies like 1031 exchanges and stepped-up basis, and argues for a long-term buy-and-hold approach to build passive income.
Chapters
Should you sell or rent your property? So whether you have a single-family home, a house, townhouse, condo, or apartment complex, small or large, one of the questions you might be asking yourself is, should I continue to hold on to this property and rent, Or should I sell? And if I sell, what am I going to do with the money? And we're going to talk about a few questions to consider today. As a property manager, asset manager, and investor myself in real estate property, investment property, it's one of the questions that I'm constantly asking myself, running the numbers, evaluating Do I want to continue to hold on to this property? Is it the right time to sell? Some of the factors that come into play are: have I maxed out the value of this property? Is it— what's the market like right now? Can I sell for a decent number and rotate those sale proceeds via 1031 exchange into another property? Right now in 2017, the amount of inventory is really low, so it's challenging to potentially sell something when you, you may not be able to find a good replacement property. Generally speaking, I'm kind of of the Warren Buffett mentality of buy and hold. Buy good properties, hold them for the long term, which generally speaking is forever. From the investment side, you want to see what your goals are. So if you're at the beginning of your investment career, your goals might be more aggressive and you want to be churning your investments. Or you may be really risk-averse and holding on to the property is the right answer for you. In determining that, usually investors look at the ROE, or the return on equity, looking at how much equity, if you sold the property, how much profit you could get compared to how much money you're making on that. So if the percentage is really low, like 3%, then your money's not working very hard for you. It might be something to consider selling. Again, looking at the current market and inventory available. Again, some of the other considerations that I take into account, other investors take into account, taxes. So if you do sell, you'll want to utilize the 1031 exchange, or maybe you don't, maybe you want to cash out. Personally, I think avoiding taxes or deferring taxes as long as possible is going to be very advantageous. If you do that and you pass your property on to an heir, they're going to get the stepped-up basis. Check with your accountant or attorney to find out more about those things, and, or estate planner. But real estate in general, huge flexibility and options to generate income and long-term wealth. If it's your primary residence, of course you can't 1031 that, so you can't take advantage of that tax provision, but you might be able to take advantage of a better tax provision, which is the primary residence exclusion, and you'll want to check with your attorney or tax accountant to see if you qualify for that. Generally speaking, if it's your primary residence and you've lived there for 2 or more years out of the in the last 5 years, you can sell it and generally not pay any taxes. There is some rules that go with that threshold of dollar amount of profit that you can't exceed per spouse, and legislation's always changing. So if you're watching this video in the future, pay attention to any new updated legislation. The return on your investment is the other metric, common metric that people use to evaluate how hard their money's working. Looking at how much money you put into the property and how much cash flow on a yearly basis that you're getting. Are you getting 7% on your money? It's not a bad investment and probably worth holding on. But again, asking yourself the important questions of, you know, where am I at in my investing career and what are my— what's my risk tolerance and what's the current market, what are my goals? And usually Those will go a long way to helping you answer the question of, should I rent or should I sell? And of course, for me, one of the main goals with real estate is developing long-term passive income is kind of like the goal with real estate. So to generate wealth and cash flow, so holding on to the property for the long term is a great way to go. I hope that helps. Thanks for watching. You can check out more about our company on the web at c-rem.com, and happy investing.
