Making The Decision To Sell Investment Properties

Scott and I are divided on whether to sell our Indianapolis rental real estate. I’m on Team Sell, and since I tend to blog more frequently, I have already posted the bundle for sale.😊

Seriously, for marital bliss I wouldn’t recommend marketing property you own jointly with your spouse while you still disagree!

I did check that Scott is on board with at least exploring a sale (hence the post). However, I can tell he’s not 100% on board with actually selling, and our back and forth inspired this blog post.

Please write in if you have thoughts on how to break our tie! After all, we can’t be the only people stuck on how to know when to sell a rental property.

Are we repeating the same real estate mistake from before?

We faced a similar sell-or-hold decision in Asheville a few years ago with our first rental property, a single-family residence in the Haw Creek neighborhood. It was a bre

ak-even investment (that was our first rookie mistake – not enough margin). Our property managers at the time were not good (second rookie mistake – not making changes fast enough). Our tenant had turned over, and the replacement tenant was more bothersome than the original tenant (third rookie mistake – overreacting to what is an average problem). So we sold the Haw Creek property at a slight loss, and this was the biggest rookie mistake with that property:

• Transaction costs ate away at the few years of appreciation we had. Had we just held onto the property (it was break-even after all) we would have spread out future transaction costs over more years;
• Holding would have allowed us to experience more appreciation (a lot more as it turned out in the Asheville market) and principal pay-down from the tenant covering our mortgage;
• Holding would also have allowed us to get more rental experience under our belt so we would have realized that the issues that loomed large for our first rental property were actually easily solvable.

Oh well, these were important business lessons to learn, and we got them for cheaper than an MBA. Still, I know Scott is thinking that we might be selling too soon again with Indianapolis.

Indianapolis is a different market than Asheville

From a financial standpoint, exiting that one home in Asheville turned out to be a mistake because appreciation was so strong in the years after we sold.

Indianapolis appreciation is steady, but modest, and not the same velocity. Furthermore, our Asheville rental was located in a predominately owner-occupied neighborhood, while our Indianapolis places are in more mixed rent/own neighborhoods. Appreciation is typically stronger in owner-occupied neighborhoods because you get the homeowners who fall in love with properties and pay more than investors normally do.

From a personal standpoint, we are tied to Asheville for more than just our rentals. We enjoy going there — the food, the live music, the Blue Ridge mountains — so business is always mixed with pleasure. It’s closer to where we live and like to travel, so less disruptive if we need to fit in a quick trip. When we move our home base to Jacksonville, it will be even closer.

On the flip side, Indianapolis is further away, and while it’s a fun city, I don’t feel the need to return to the city or surrounding areas year over year. It is not going to be a quick detour on our other travels, and we have a lot places we want to go.

We are different investors now

Since that first rental in Asheville, we have bought and sold 20+ more times, so I am confident we are not making a panic decision. We know what we want from our rental investments, and the criteria that led us to Indianapolis have changed.

When we bought in Indianapolis, we were in a hurried expansion mode. My business hit its peak earnings, and Scott was still in his corporate job, so we had cash to invest. We also knew that Scott wanted to leave his job, so we needed to deploy that cash in something that would replace at least some of his earnings.

Indianapolis fit that criteria (and still fits that criteria) – our five rentals there are our strongest performers from a net cash-flow perspective. Furthermore, the purchase prices were lower, compared to our other properties, so we were able to get in easily, add volume to our portfolio, and add immediate cash flow.

However, our criteria have changed. We have since bought additional properties, including our vacation rentals in Costa Rica so we have volume and cash flow in our portfolio, even without Indianapolis.

We now prioritize simplicity – decreasing our portfolio by five properties and one geography would certainly simplify things for us. We bought our first multi-family, our first vacation property, and invested in our first note since buying in Indianapolis.

All of these types of investments are more in line with what we want to do in the future. Freeing up cash with an Indianapolis sale would enable us to invest based on our current investment criteria, not the past.

We don’t have to sell, but no choice is still a choice

Since Indianapolis is cash-flow positive, and our strongest performer at that, we don’t have to sell and can punt this decision indefinitely. However, no choice is still a choice. If I wasn’t clear on what else I would do with the cash freed up from a sale, then I wouldn’t be too keen to sell. But we have other possibilities for that cash, so every moment we delay is more time we choose our past over the future.

If we don’t sell, changing property managers is another option.

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How about you? How do you make sell decisions on your real estate?