Keep or Sell (Again)

[zoro]

My tenant just called to say they are moving out in two months, so I would appreciate your  detached perspective on a property that I have emotional attachment to for an odd reason.

I first bought the property in 2000 for $88k cash. At the peak of the bubble in August 2005 (the neighborhood is marginal so extremely tidal with prices) prices went nuts -  I was only getting $950 rent per month. I sold to a fancy "hedge fund manager" for $240k. (two days later he tried selling it for $310k  - it didnt sell) He rented it out to increasingly dubious characters until he declared federal bankruptcy in 2009. The house went into foreclosure etc which takes ages in my state, so the house stood empty. I found it painful as I have 6 other units close by, and I had done a nice job fixing it up.

It finally went to auction in 2014. the bank tried selling it, but someone had stolen the copper by this stage. Long story short I purchased it again for $66k cash.
It now rents for $1575 per month. 

However four doors down the street has just sold an identical one for $220k!  I know I should only look at the $220k and the $1575

but..... I love telling the story and would love to get more than the $240k second time around. (am I being stupidly vain here.)
Interest rates are low - so my usual rule of thumb is >150x monthly rent and its gone may not apply
esp with inflation coming....

Should i keep or sell?  Oh I should say the property taxes are high at $5k per year - I have appealed and won once, and appealed and lost once so they are what they are....

Would appreciate any insights.

[franklin4]

That is a great story!

Seems like the place is making money for you, why not keep it or at least wait until things really heat up to sell. If you can sell for a crazy high price and buy it again cheap wouldn't you be obligated to keep it forever?

[zoro]

If I did it again I would become completely insufferable telling the story at every bbq I went to.
The thing that makes me wonder is the prices can and do drop in this neighborhood. People
Get priced out of neighboring good towns and move to this one as a last resort - so the prices cycle - it wasn’t just 2005 it did it for the previous owner in 1988 and 1991 similar boom bust.

[former player]

If it were a purely economic decision based on prices/rent presumably you ought to be selling the other six units too.

[zoro]

That's an interesting question I hadn't considered. The others are all multiple family, and I don't think they have spiked as hard in terms of the selling price.  (RE investors may be a lot more shrewd than Millennial first time buyers.)  Of course I could deconvert them to single family homes, but this would be a lot of cost and the rent from them is much higher than the one in question -  the rent from the 3 families is quite good at $1100 each apt or $3300 per building. I would be surprised if I could get more than $250k for them.
One of them I kind of have to keep also as it is an opportunity zone property, so the benefits rack up longer term in terms of free capital, a bonus rate reduction in 2027 and capital gains free appreciation etc

[PMJL34]

This is a funny/sad story OP, thanks for sharing.

You can't go wrong here whether you sell or hold. You are golden either way.

 

[marty998]

There is a very famous phrase in Australia - "you only get one Alan Bond in your lifetime".

The story goes, billionaire media baron Kerry Packer sold TV Channel 9 to fellow billionaire Alan Bond for about a billion dollars (this is in the 1980s). Bond then went bankrupt and Packer bought the station back for $100 million. Legend has it he never cashed the cheque and instead had it framed and hung up in his office.

You my friend appear to have found your second Alan Bond.

[zoro]

There is a very famous phrase in Australia - "you only get one Alan Bond in your lifetime".

The story goes, billionaire media baron Kerry Packer sold TV Channel 9 to fellow billionaire Alan Bond for about a billion dollars (this is in the 1980s). Bond then went bankrupt and Packer bought the station back for $100 million. Legend has it he never cashed the cheque and instead had it framed and hung up in his office.

You my friend appear to have found your second Alan Bond.

That's a classic I had never heard that story.

[SndcxxJ]

What a great story.
I, for one, am not selling in this market.  I wouldn't discourage you from selling, but I think there are a few questions that have to have some solid answers to first.
The pros to selling is high valuations, and low capital gains tax rates.  The cons to selling is potential for inflation, and (again) high valuations in other asset categories.
My question is, what would you do with the capital?  You are probably looking at a capital gains tax of at least $26k, maybe more, depending on your state and other income, and the cost basis because of deprecation.  Your closing costs will be something as well, maybe as much as $20k.  If you are just going to park the money in a different investment and hope for historical returns I am less inclined to support that.  If however, you can 1031 exchange into another multifamily property whereby delay your tax liability and increase your monthly income it may be a great option.

[zoro]

What a great story.
I, for one, am not selling in this market.  I wouldn't discourage you from selling, but I think there are a few questions that have to have some solid answers to first.
The pros to selling is high valuations, and low capital gains tax rates.  The cons to selling is potential for inflation, and (again) high valuations in other asset categories.
My question is, what would you do with the capital?  You are probably looking at a capital gains tax of at least $26k, maybe more, depending on your state and other income, and the cost basis because of deprecation.  Your closing costs will be something as well, maybe as much as $20k.  If you are just going to park the money in a different investment and hope for historical returns I am less inclined to support that.  If however, you can 1031 exchange into another multifamily property whereby delay your tax liability and increase your monthly income it may be a great option.

Exactly my thinking here as well.  I'd be looking at this plus the portfolio balance as a whole (which we don't know).  If your whole portfolio is those multi-family units, then maybe sell to get some diversity into other types of assets.  But otherwise, selling is a dicier proposition.

so my income eal estate is about 7% of my net worth total nw is in 8figs but I retired from big co this year. I hear you on inflation and what to do with cash. In some ways that means lowering expected return and that feeds into the buy or sell equation I guess.