Update On Our Real Estate Portfolio – We Recently Sold Two Properties

We have a lot to update you on! We closed on two sales in July: we sold one of our two Tamarindo condos; and we sold one of our three Florida condos. We also moved from a 2-bed condo in Florida to a 3-bed, to get more space. We considered and ultimately decided not to sell another rental. Finally, we have an unexpected offer in the works for yet a different property, so there may be a Part 2 to this post sooner than later.

Selling Condo Reeves: An earlier blog post started us on the path

I wrote about the hot Costa Rica real estate market this past February, and as part of the post I floated different ideas for what we could sell. We hadn’t even thought about selling, but after writing the post, it became clearer what we should do. There are several renovation projects we’d like to make on our house in Costa Rica. These will cost tens of thousands of dollars, and we’d rather not add more money into our Costa Rica portfolio. It already represents 25% of our net worth.

Instead, we are rebalancing the portfolio by selling one condo (the one named after Keanu) and rolling 30-50% of those proceeds into the renovations. The other proceeds will be invested in paper assets, which gives us much needed liquidity and rebalances our portfolio from being too real estate heavy (70% of our net worth was in real estate at its height). The condo had been a good performer for us until the pandemic. While things are improving, it will be at least another year, if not several, before the market fully returns. In addition, a year after we purchased, Costa Rica introduced a 13% VAT (value added tax), and that decreased the projected ROI in the short-term, until we could fully load the VAT into our rates. You do not want to just bump up your rates by 13%!

At the same time, property appreciation was strong and possibly even helped by the pandemic, increasing the populations of digital nomads and others looking to escape to a less populated town. We were able to sell for ~20% more than we bought the property for less than 3 and a half years ago. Transaction costs for real estate are significant in Costa Rica, as they are in the US. Closing costs included ~3% of the purchase price, capital gains tax is either 15% of the gain (for properties purchased after 2019) or 2.25% of the original purchase price (for pre-2019 purchases), legal costs specific to us being foreign sellers were ~$1,500 and agent fees were 6% of the sale price. Even so, the appreciation, along with the profits we had earned over the 3+ years that we owned it, gave us an annual return of over 5% over this property’s short tenure. Had we not lost almost a year in 2020 due to the pandemic, that number would have been higher.

Selling a Florida condo:  An unexpected turnover gave us the option to trade up in space

While the sale of Condo Reeves was in the works, another opportunity to sell arose unexpectedly. When we moved to Florida, our plan was to take over one of our rentals and convert it into our primary residence. Our first choice property, a 3-bed condo in Ponte Vedra Beach, was rented by a long-term tenant, and we didn’t want to ask her to move. Another one of our rentals, a 2-bed condo in Jax Beach was coming up for renewal anyway, so it made more sense to just take over that one. In addition, the 3-bed was more profitable as a rental, and living in a 2-bed would be more cost-effective, so it was a better financial move.

Cue the pandemic, and we really wished we had the extra space, even if the financials pointed otherwise. As luck would have it, our 3-bed tenant got engaged and wanted to break her lease early, which gave us the opportunity to move into the condo we had really wanted for ourselves. We put our 2-bed condo on the market, sold it for cash at above the asking price in the first weekend it showed, and only had one month of overlap between the old and new place.

We decided to sell the 2-bed rather than re-rent it because the amount of cash we could pull out of it was more valuable to us than the potential rental income stream. We are at a high point in Jacksonville real estate. I don’t know if we’re at the top, but to give you an idea of how rapidly the market is increasing, our condo was the highest priced sale in our complex to date (and our unit isn’t updated), and our sale price was over 33% more than what we were offered for the same unit just under two years ago. We plan to reinvest the cash into paper assets – part of that ‘rebalancing and liquidity push’ we did with the Condo Reeves proceeds as well.

Almost selling our only duplex: Tempted by the Jacksonville real estate market

Coincidentally with the condo sales, one unit in our rental duplex became vacant, and the remaining tenant signaled they would be moving out soon. If you believe Zillow, our duplex has appreciated over 70% since we bought it four years ago. Selling it would free up over $200k in cash, in addition to paying down our highest outstanding mortgage. The property is over 100 years old, and insurers are leaving the Florida market. Team Sell was shouting in our ears some pretty convincing arguments.

However, we are able to find an insurer for this property. The house is in great condition – we just replaced the roof and recently updated the HVAC. This duplex is in a walkable, trendy area of Jacksonville, and the location is only becoming more desirable as Jacksonville consistently ranks among the fastest growing cities in the US. The rents from this duplex are steady, cover all expenses, including the mortgage and net over 10% in profits. Team Hold had more convincing counter-arguments, so we decided not to put the duplex on the market. As it turned out, our vacant unit rented quickly, and our remaining tenant renewed.

Another potential sale in the works

In a different rental property, one of our tenants has expressed interest in buying. They are doing inspections and other due diligence, so we know they’re serious. The last step for them is to look at their financing options, which they’re doing in the next few weeks. We’ll report on what they offer, and whether or not we sell in a later post!

What are your exit criteria?

Sometimes an opportunity unexpectedly presents itself, as it did with the longtime tenant of our 3-bed condo moving out. We had already planned on moving out of the 2-bed and selling it at some point, so our exit criteria were clear. We also have an idea of what we’d like to do with our other properties, so when we get a curveball (like a tenant interested in buying) we at least have a starting point and are not caught unawares. Of course, we still need to weigh our initial plan against the current reality of the market, or whatever opportunity is in front of us.

How about you? Do you know what would make you sell and buy an investment?