To Hold or Sell A Florida Investment Property

While we have sold off real estate before, we have done far more buying than selling (19 purchases, 3 sales). However, we have a rental condo in our Jacksonville Florida portfolio that we are thinking of selling. We have made the mistake before of selling prematurely, and we have good reasons to keep this place.

We similarly considered selling our Indianapolis turnkey portfolio recently, but instead opted to hold it and change property managers because with good property management, the Indianapolis set of properties has great cash flow potential.

Team Hold – Reasons to hold the property

We have a great tenant in place

We still have the original renter from when we first bought the place in 2013. This renter pays on time and has been easy on our property manager, and has repeatedly signed two year leases, giving us piece of mind against vacancy.

Having had problem tenants in the past, we know the value of a good tenant.

Rental gives positive cash flow

We don’t have to sell now so we don’t want to make a rash decision. The cash flow is several hundred dollars per month, even with paying an HOA fee every month, and so it provides a reliable buffer for the rest of our portfolio.

Maintenance costs have also been very reasonable. With the exception of replacing the air conditioning system a few years ago, our maintenance costs have been pretty low, around $300 per year.

Getting cash from a sale diminishes the hustle

As small business owners, we should always be hustling anyway, but I know my own tendencies and having a six-figure cash inflow will diminish my hustle. I do perform better when I’m not under great financial duress, but I need some financial pressure to motivate me.

It’s a delicate balance, and I worry that I’m already relying too much on this sale (even before it has happened) over nurturing other income streams.

That said, we have big travel plans for the fall, and realistically we will not be working as much in the second half of the year. A sale would be very helpful to us, and the time seems to be right to sell.

Team Sell – Reasons to sell the property

Condo appreciation is likely at its peak

We bought the condo when prices were on the upswing but not fully yet and we got a great short-sale deal. In the five-plus years that we have owned it, we have seen over 60% appreciation on our purchase price.

However, the current price is probably as high as it will be for a while. Maybe it will go up a little bit more with inflation, but it’s a condo, and condos don’t age as nicely as wines!

Newer condos are already being built, which will be more desirable. Additional new complexes will continue to come up. Jacksonville is large, and there are still places to build out, unlike Manhattan.

Return will be flat or even diminish in the future

The condo is cash flow positive, and rents have gone up a little bit, but not as quickly as insurance (climate change!) or taxes (government deficit!).

The HOA dues have held steady, but these will increase over time as the condo ages. I don’t think the potential rent increases will outpace the inevitable increases in insurance, taxes and HOA dues.

We have better investments options than the equity

If we do sell, the net proceeds could be used in a number of ways. Some options we’re considering:

• Repay debt on other rentals. Our highest mortgage rate is 7% right now, and a sale would give us enough to repay that entire loan. That’s not a bad return to lock in (though the ROI would be slightly lower than 7% since the interest paid is a tax-deductible business expense);
• Shore up our cash reserves. If a recession hits, there might be deals we could land with strong cash offers;
• Add to our private lending. We currently lend at 10%, which is better than the rental ROI on this condo

We don’t have alternative ways to pull out the equity than selling

I have looked into a cash-out refinance for this condo as a way of holding onto it, but accessing some of the equity. We paid cash for the condo in 2013 so we have a significant amount tied up in this one holding.

• Our preferred lender doesn’t do condos.
• It’s too small for any of the commercial lenders I have talked to.
• A private loan would be too expensive to maintain a decent profit margin.

We used to have a home equity line of credit (HELOC) on this property, which was a great way to access the equity and still get the cash flow.

However, the HELOC expired after five years, and the lender with which we opened the HELOC only lent on investors with fewer than four rentals. We qualified before, but not at the five-year mark.

Balance our portfolio – we have other real estate investments

Finally, looking at our portfolio as a whole, we are already two-thirds weighted in real estate (versus paper assets), which is more than our 50/50 desired target. Compared to our other real estate investments, this one is the best to sell right now for the above-mentioned reasons.

Therefore, we should trim this one in order to right-size our overall portfolio.

======

I’m leaning towards selling, and the time is right as the current lease is up in a few months. I’ve already contacted our longtime realtor to get comps.

What do you think? Team Hold or Team Sell?