When market increases so fast, what makes you decide whether to sell or hold?

[andysandp]

The market has increased very rapidly since 2012.  In Boston the market has increased more then 50% since 2012.

Those of you who bought Investment Properties around 2012, what makes you decide whether to sell or hold?  Are there certain rules of thumb you use?

[SwordGuy]

What are you going to do to replace the income from the rent once you sell?

[andysandp]

For example, if market is up 50%, and you put 25% downpayment, you doubled your investment (downpayment), after paying all Taxes and Commissions.

You can put the money into S and P, or perhaps payoff one of your other investment mortgages.

Anyone have some rule of thumbs or thoughts?

[Capt j-rod]

My properties are rentals... Im in for the long haul. Now that property value has increased I have to buy fixer uppers that traditional loans don't cover. As far as selling, I am in the process of upgrading two properties. The weakest properties in my portfolio are for sale and they will go towards the purchase of nicer neighborhoods. My own home has gone up 30% as I have paid down the loan. It is nice to add it to my net worth, but I have no intentions of selling. If you are in a higher priced/higher cost of living you might consider selling and relocating to a lower cost of living area for FIRE.

[waltworks]

Money is money is money. If there is $250k of capital tied up in a house that is only netting me $500 a month (made up numbers) then I'll dump it and invest in whatever best investment is out there (could be a different rental, could be stocks/bonds, could be paying down debt on something else, etc).

I sold all my rentals 2 years ago for exactly that reason.

-W

[Coach Carson]

I think the decision depends upon:
1. Your goals & plans
2. Your opportunities to replace the money

It could be perfectly reasonable to hold properties forever or to sell now depending upon those.

Example of #1 - let's say your goal is to reduce risk and increase cash flow for early retirement very soon. And let's say you have 6 appreciated properties all with mortgages. You could strategically sell 2-3 of them, and reduce or payoff mortgages on remaining ones. If income from remaining properties + other sources meets your FI goals, then it makes sense.

Example of #2 - you find another incredible rental deal that makes much better cash flow. You sell (perhaps with 1031 exchange) to  free up the appreciated equity and reinvest.

But if your goals are more long term and if you don't have decent replacement, maybe keep them. Market will go up and down again. And if you still have decent leverage that will magnify future returns.

[waltworks]

The key is to remember that historically speaking, housing appreciates around the same rate as inflation. You can get lucky and be in the right place at the right time - but if your place doubled/tripled in value, you probably already did that. There's generally no reason to expect indefinite increases in RE prices, or that housing prices will outpace inflation in the long run.

Of course if you don't have anything better to invest in, there's no point in selling. But I see a lot of people here (which is a Bay Area/VA and DC/NYC heavy forum) who seem to think that they are geniuses because their house appreciated a bunch in the last 5-10 years, and that they're going to see continued appreciation like that going forward. I would not bet on it.

-W

[andysandp]

Waltworks, that's what I'm thinking.  Appreciation should only be 3% a year.  Prices have increased too much the past 5 years and the Rents aren't high enough to justify the Selling price.

I'm thinking of putting the sale proceeds into S and P.  Some people are saying S and P is too high, but I should be fine long term.  Another option is putting the sale proceeds to pay off the mortgage of my other Investment Property that has a mortgage of 5.25%.

Seems like a lot of people might be in the same position as me since the RE market is red hot.

Anyone else with thoughts?

[sol]

Do I need the cash in the immediate future?  If yes, sell.  If no, hold forever.

Did you mean to ask how I try to time the market?  I try to avoid doing that.

[waltworks]

The residential RE market can be timed, albeit only on a small scale, and with enormous transaction costs. It's inherently not as efficient of a market - though with all the big capital involvement during the aftermath of the crash, I'm not so sure that will remain true going forward.

-W