A few weeks ago my property manager emailed me to ask if I’d be interested in selling any of my properties.
I told him I wasn’t but I would be interested in their estimated value. I had heard the market was “hot” for rental units and I assumed mine had gone up in value, but I wanted a better estimate than they had “gone up.”
He said he’d have his real estate department look them over and get back to me with prices.
A few weeks later he got back to me.
I’ve detailed all my real estate investments so you know what I initially spent on my properties. In addition to the numbers there, I’ve done a few upgrades and repairs since then. As such, I have $579k invested in my units.
When the agent got back to me, he estimated the value of my units to be $840k! Hurray!!!!
A few thoughts on this:
- This doesn’t really mean much. It’s all on paper. But it does make me feel good. (FYI, I am NOT updating the value of the properties in Quicken. But I am tempted to do so. Who couldn’t use and extra $260k in assets?) 馃檪
- This means my total return on the properties has been substantially higher than 10% per year (my goal). Remember that I bought them with the intention of not counting on appreciation but I thought it was likely since I bought when the market was low.
- Question: Does this also mean that my annual returns (assuming the homes don’t keep appreciating) will be lower than 10%? If I earn $60k a year on $579k invested, that’s around 10%. But if I earn $60k on $840k, that’s only 7.1%. Again, it doesn’t matter as I’m about the income, but still worth considering.
- The $840k represents a retail price. I’d likely sell for less and pay a commission, so I wouldn’t receive this amount if I did sell.
- I’m not going to sell as I need the income as part of my retirement strategy. But is there a point I should? What if they were worth $1 million? Or more?
- What I’d really love is a market dip and to buy some more. Wish I had done that a few years ago!!!
Let me know if you have any thoughts/suggestions concerning the properties. I’m always up for some input.
You are right, right now it is on paper, so no extra income from it and you would probably not see it all if you sold today (fees & taxes). It should still definitely make you feel good! Congratulations!!
I believe you could use capitalization rate as an indicator on whether to sell or keep. Given the greater market environment, I’d be leaning towards keeping if they are in good condition and well rented (as yours seem to be). I am looking to sell a few of mine now because they are (1) getting beyond their prime, (2) the market is as appreciated as it will get for what I own, (3) require a lot of hands on with less than ideal tenants.. some are non-traditional; trailers.
I am eager to see you go through the selling process investigation. I have just started and it myself and there are a lot of key factors that greatly impact how much of that asset number you get to keep, versus lose in Fees & Taxes.
Thank you again for sharing so much. Keep up the great work! It’s appreciated!
Let us know if you sell. It would be great to get details from someone who actually did it.
It’s nice to see your values going up, even if it is just funny money. It should give you confidence that you can at least maintain your monthly rents and could you maybe increase them? With properties up across the board, there will probably continue to be a strong market for rentals since fewer people will be able to afford to buy. All good for landlords!
As far as selling, the question is, what would you do with the money? Interest rates are so low now, I have to believe you are making a better return with your rental. If however you could sell your units and buy a CD and make the same money without the hassle of tenants, that would be interesting!
Yes, rents are up too, which is nice.
There’s no way I’d get anywhere close to what I’m making on my places with other options, so I’ll be keeping them for now.
That’s a great boost and an excellent retirement strategy. I’m thinking more and more of investing in real estate for retirement purposes. However, my challenge right now is raising enough cash to get the first property started. I want to give myself a deadline to get the first one completed, but it’s not realistic and it means that I would have to be fully employed until I’m 45. It’s a rough catch 22.
Have you considered buying a multi-unit and living in one as a way to begin?
I know you’re adverse to debt, but have you considered doing a cash out refinance and using that money to buy more rental units using a 15yr mortgage?
Pros
* You would be taking advantage of the low interest rates. If they start to go up, we might look back at this period and wish we had.
* You would get the benefit of leverage. I’m not sure how much you have used leverage on the current proprieties, but it would boost your ROI. I wouldn’t advocate more than 50%.
* If you use a 15yr mortgage, you would be 67 with a whole other set of rentals paid off by then.
* It would boost your monthly income now and even more when they are paid off.
Cons
* It puts a liability on your balance sheet. It’s not something I like, but on steady-income assets I’m slightly more lenient.
* It’s harder to find opportunities nowadays compared to the 2008-2009 period when we bought our rentals. … those were good times.
I’m very debt adverse and, in fact, I own one fully paid rental unit. But I’ve run the numbers and adding a little bit of leverage and buying more units increases my monthly income and ROI over the long run. Also, I’ve owned the rentals for 5-6 years and know their rent and expenses, so borrowing against them isn’t as risky as I once thought.
I’ve actually considered that (believe it or not).
My main issue is that the markets where I’d buy (either in CO where I live or MI where my current places are) are on FIRE! I’m not sure I could get even a decent deal. And I don’t really need the money at this point.
If I saw a downturn though, I’d be much more aggressive. I like to buy when others are selling. 馃檪
I sold my rental property in June 2006. The area it was in was losing population and I might need to upgrade the property costing me more money than I was taking in. Also around that time I felt that housing was way too positive. I was lucky I got out before the 2007 housing market began to crash. I sold it to my renter as me as the lien holder. But within 6 months they were not paying the taxes on the property. The lawyer I used did not want me to set up an escrow and I regrettably listen to him. But I sold the lien in December 2006 and got most of my money from the sale. The town I had my property in went from 70,000 to 40,000 as people moved to find jobs. Those with rental space available are finding it hard to find renters. So not getting over zealous is a good strategy.
What great news on the appreciation of your real estate investments! Selling is so expensive – it really eats into equity. It sounds like your plan to keep them is the way to go.
Part of our early retirement plan is to pick up a few rental properties as well. Hoping to secure our first within a year.
You did wonderful at buying low and making it better with appreciation when the market came back.
I understand your $60k in income on now $840k in assets only yeilds 7%ish but you did make out well with growth.
What are the chances of increasing rents to market values?
I have seen some growth in rents and it’s a constant conversation with my property manager — how can we get more?
I will be having a monthly phone call with them starting in October and I believe that will help me get them focused on more revenue and lower costs.
Sounds like you bought at an amazing time. Personally, I wouldn’t sell if I were you especially if you don’t need the money. Additionally, I would look at the return that you have based on your cost basis in the property vs. what the appreciated value is. Since you haven’t actually expended the appreciated value it seems unfair to say that your returns should match an appreciated value.
Hello,
Well done on your property assets.
I live in Australia such as comparisons on property are never like for like owing to taxes, market rates and commissions.
When talking about rentals decisions could include:
-Would you feel comfortable with another GFC event, how would this impact your cash flow. How dependant is your retirement on rental income?
-What overall percentage of your income is derived from rent. Also, the greater the geographic concentration the more at risk this number is.
-Run a scenario analysis. Is most of the profitability from one or two units?
A key theme down under is being able to borrow against the value of your property. I would consider this and tax consequences also.
My 2 bob.