Author Topic: Convince me it is better to sell  (Read 3171 times)

1tolivesimply

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Convince me it is better to sell
« on: October 15, 2015, 12:03:49 PM »
Hello everyone, this is basically another one of those should I sell or keep my rental threads :)
In this case however, I'm almost convinced that selling would be the best move.

In 2012~2013 I mentioned on this community that I wanted to buy another rental property. I ended up buying it, it cash flows, but not as much as I would want it to, I think the numbers are not worth the hassle for me right now, a good thing though is that it has been crazy in my town since I bought it and it has appreciated about 70K, selling is not a money losing option.

Vacancies have not been an issue, although I doubt it will always be like that, rent should be going up about $100 a month in six months when the lease is renewed and the tenants know about it (assuming things continue to be as hot as they are right now though), the main issue has been repairs, on a perfect month I'm cash flowing about $270, but with all the repairs I've had to do last and this year, I think my cash flow is closer to $25 or less, even at $270 a month, my cash on cash return is about 9%, which is still low for me now after reading as much as I have since I bought the property.

Now the only problems I'm seeing as I type this are: first, the time of the year, it's getting cold and as most of you from the north know, winter is the worst season to sell real estate, and second, it is rented until next year, so that limits the amount of potential buyers to mostly investors, I would not want to inconvenience good tenants trying to work a deal for them to move.

On the other hand, who knows how things will be in Spring? things may cool down, recession? RE crash?

The question is: Should I list it now and have a reduced pool of potential buyers or should I wait until Spring and the house is vacant? What do you think?

Thanks

Another Reader

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Re: Convince me it is better to sell
« Reply #1 on: October 15, 2015, 12:08:56 PM »
The vast majority of buyers are owner-occupants.  Even if they were willing to wait to get into the house, the lender won't allow that.  You are generally better off to sell a vacant house in the spring than to sell a tenant-occupied house in the winter.  In your shoes, I would re-examine the situation a few weeks before the lease expires.

chubbybunny

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Re: Convince me it is better to sell
« Reply #2 on: October 15, 2015, 12:16:29 PM »
I have a property that I've decided to sell, but I won't be listing until the current tenant moves out.  Lease is up in June and I will wait until then.  The extra money I'll get is definitely worth the wait. 

Also, if you only bought it a couple years ago, remember rent should continue to rise.  You might find out it's more cash flow positive fairly quickly.  I definitely wouldn't RUSH to sell it.

Drifterrider

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Re: Convince me it is better to sell
« Reply #3 on: October 15, 2015, 01:10:59 PM »
Have you considered listing it as an investment property?  When I bought a property last year I also looked at tenant occupied offerings.  A house with a paying tenant can be appealing (and a tenant is more likely to point out issues as they don't necessarily have a dog in the fight).

If you go this route, have your P&L information handy.  One of the first things I wanted to look at was rents and expenses for the prior few years (if it had been rented that long).


Bearded Man

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Re: Convince me it is better to sell
« Reply #4 on: October 15, 2015, 05:37:25 PM »
The vast majority of buyers are owner-occupants.  Even if they were willing to wait to get into the house, the lender won't allow that.  You are generally better off to sell a vacant house in the spring than to sell a tenant-occupied house in the winter.  In your shoes, I would re-examine the situation a few weeks before the lease expires.

Are you sure about the first part? I've heard that rent back agreements are common in cases where the person selling needs funds from the sale to be able to purchase a new house but doesn't want to move twice.

Another Reader

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Re: Convince me it is better to sell
« Reply #5 on: October 25, 2015, 09:34:47 AM »
Possession is generally set in the contract as COE or a few days later.  The loan docs have language about occupancy.  Lenders are afraid of loans being kicked back, so rent backs are generally side deals, outside of the purchase contract.  Sellers in very hot markets might ask, but it's a risk for the buyer and the originating lender if the buyer does not get possession quickly.  The agents I know advise against rent backs, because of the difficulty in getting possession if the seller can't find a replacement property and the occupancy requirements. 

The last rent back I did was 19 years ago, with a seller that bought a spec house that needed a few finishing touches.  They needed a quick, guaranteed sale, and I was able to accommodate them because the house was going to be a rental.    Investors have different criteria than owner-occupants do.  They don't pay extra for the staging or anything else.  They are only interested if the numbers work.

tonysemail

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Re: Convince me it is better to sell
« Reply #6 on: October 27, 2015, 03:14:19 PM »
winter is the worst season to sell real estate


interestingly, redfin data did not support this conventional wisdom.  The tight supply during winter months negates the effect of decreased demand.

https://www.redfin.com/research/reports/2013/why-winter-is-the-hottest-time-to-sell-your-home.html#.Vi_nzPmOdD8

MgoSam

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Re: Convince me it is better to sell
« Reply #7 on: October 27, 2015, 07:18:09 PM »
+1 to trying to sell it as an investment property. My Realtor called me the other day about a duplex near me that's being listed, but both units are occupied and the seller wants to sell it without the tenants knowing it is sold. It is being managed by a management company, and had I been able to buy it I would have considered it.

adamcollin

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Re: Convince me it is better to sell
« Reply #8 on: October 28, 2015, 03:16:27 AM »
You must consult a real estate agent and ask if the property will make good returns as an investment property. Evaluate all factors you have in hand and see which option is better - selling or investment property.

1tolivesimply

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Re: Convince me it is better to sell
« Reply #9 on: January 10, 2016, 08:52:18 PM »
Apologies for not getting back to you earlier and for resurrecting this old thread :)

I had a couple of extra expenses at the end of the year for a total of $265, also, the fence needs some work, some of the post are rotten & starting to break at the base, I don't have any estimates yet, but that's an expense I will have to incur sooner rather than later if I don't sell.

On the other hand, I will be getting married soon and my fiancee and I ended up buying another property for us to start a family, It may not have been the best idea, but I also did it to help my parents. They will be moving to my current house, so that means no extra income from that property.

With this new house, I consider I'm real estate heavy (5 properties, 3 rentals, 2 if I sell the one with low cash flow) without generating a very solid income from it.

clarkfan1979

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Re: Convince me it is better to sell
« Reply #10 on: January 18, 2016, 03:26:20 PM »
Try to get at least 10% above the mortgage from your parents to cover repairs. A similar situation happened a couple months ago with a friend of a friend. She is moving out of her old house in Fort Collins, CO. She said that her parents wanted to move in and pay the same in rent as the mortgage. She told them that she could get about $600-$800/month above the mortgage in rent on the open market, so I can't rent to you. They weren't happy, but oh well.

Bearded Man

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Re: Convince me it is better to sell
« Reply #11 on: January 21, 2016, 08:25:46 AM »
I'd bet your returns will likely drop faster than your rents rise, because you are in an equity play market. I am too.

I started out with 13%+ returns on my rental, and now I'm hovering around 5-6%. I've started hitting major capital expenses and the value has risen like crazy. That said, I'm considering only selling the house to buy an apartment complex. I'm actually considering selling all of my single family homes to buy an apartment complex via 10-31 exchange.

There get's to be a point where based on the return and the time involved, it is no longer worth the hassle unless you re-leverage in a new, better investment.