With the RE selling market on fire in most states, what are your reasons to continue to hold rental properties and not just sell everything at above market selling prices?

Everyone will have a different answer here but I would like to hear your reason(s) for choosing to continue to be someone else's landlord. If the selling market is hot where you are, why not just sell it all and take a long over due vacation and enjoy the fruits of your labors?

I've sold ... and purchased. I want/need the income. This is my retirement.

Same as Nicole. Without the rentals, where's the income to live? And with prices going up all the time, a fixed amount of cash that has to last hopefully 20+/- years would mean an ongoing reduction in lifestyle to remain solvent. Running as fast as you can to remain in one place!

Honestly, housing is in short demand and the rents are going to continue to go up.

If you are keeping your rentals in good shape and somewhat updated, I think you'll be fine. The real question is "why would you sell"?

If you are in the business to help fund retirement or get you to "be your own boss" or whatever your intent was then I don't think you should sell especially if you still want to be in the business. If you ended up "in the business" by default (such as fell into it due to an inheritance or couldn't sell a property when you needed or wanted to move, etc) then yeah, you should probably think about that unless you are enjoying it now and it's becoming part of your lifestyle.

I have sold about half of my rental portfolio over the last 5 years and will continue to downsize only because the market is extremally profitable at the moment and yes, I will pay some long-term capital gains.

Most of the proceeds have been placed with a broker and invested in the stock market and doing well. I will continue to fund this brockage account monthly.

I like being diversified stocks and real estate.

My plans are to continue with flips and wholesale.

I'm selling also. I think the govt will add more and more restrictions and I've had enough of it. I also predict that other states will follow California's lead to tax flippers.

I'm thinking I may buy some sailboats and lease them on a short term basis to vacationers in the Caribbean. Dock them there and have it all handled by companies there who do that.

I'm beginning to slowly sell out to my son. I'm taking the proceeds and putting it in the market. If you averaged the last 25 years my market investments have made just over an 11% return. Not quite the 25+% returns that RE have made but there's almost no work involved in a market investment.

Back in 2005 I attended a seminar by a famous economist and book writer. He suggested that a "mortgage melt down" was around the corner and it was time to sell "out worst properties". I took a look at my holdings and it was over 80% in investment real estate. It was time to sell, also because the Long Term Capital Gains Tax was about to go up:

Long Term Federal Capital Gains Tax from 15% to a top bracket of 20% AND

my California Tax was headed from 9.3% to 13.3%, PLUS

the Affordable Care Medical Tax was being invented to add 2.9% to the MIX.

Add that plus the 25% recapture, then with commission and transfer taxes I was looking to be close to 50% in taxes, commissions and fee's.

So I sold my worst properties and saved myself around 12% in taxes.

Half of my sales were thru 1031 exchanges and the other half I cashed out.

I will give you 1 cashed out example. I sold an apartment building pulled out $400,000 cash, then I had to pay around $100,000 in taxes, netting only $300,000. This was in 2005. I invested that money in 5% CD's. THEN in 2009 I found a investment home that had been appraised for a second mortgage (for remodeling) at $669,000. That house got foreclosed on and I was able to buy it for $340,000.

So by selling an apartment property at the top of the market and banking the money, I could buy something else for HALF, a few years down the road.

I have down sized from about 120 down to 40.

I have simply refocused and consolidated into other niches where it makes better sense to buy and hold.

Have all my 1031's gone as planned - nope. But for those, I just buy a large wheel barrow for the cash. It certainly beats buying one for aspirin to treat the headaches.

Sell it and put the money where? After all the state and federal taxes, capital gains and recapture, and commissions, what is left isn't nearly as attractive as the selling price.

There is precious little to 1031 into and whatever is on the market is just as high priced as what I would sell, and I don't want to leave the area and take my money to a cheaper area.

Money markets are paying under 1%, and I'm not so sure that teetering on the brink of a possible war is the best time to get into the stock market.

I think in terms of opportunity cost. What else would I do with the money that would be better?

I'm still of the view that housing has a great long-term upside. Specifically Class C, 2-bedroom, SFHs, which no one is building. You know the rule of Supply and Demand as well as I do. Right now, there is a VERY limited supply of Class C, 2-bedroon, SFHs.

No one is building new 2-bed, SFHs. They are not being replaced when they burn down or fall down, or when tenants just destroy them. And not everyone can afford or needs a 3-bed rental. In my town, a 3-bed rental that is not a trash heap overrun with roaches will be $1200 a month. My 2-bed houses are $700-$800. There's a lot of "space" between those numbers, and even 3-bed room rentals are hard to find because most of the 3-bed houses are being bought up as starter homes and few entry level 3-bed houses are being built.

Most builders in my town are building $300,000+ 3-4 bed room above entry level quality houses. Thus, there will continue to be a shortage of those houses as well, which will keep prices strong.

All this to say, I have no other plans for the money now, and even if I did, I'd expect to be able to sell them for 20% more next year.

Gene said, "Roy, it is definitely a good time to sell off your less desirable properties".

Nicole and WMH----Long term, the stock market returns 10-11%. Put the proceeds from the sale into an index money market and leave it be.

Roy,

A billionaire investment firm wants to buy my entire RE portfolio. They want the cashflow, appreciation, and depreciation.

If I keep my props I already have what the billionaires don’t have but seriously want.

I like to think I’m following the billionaires’ lead.

Maybe I’m wrong but with cashflowing paid off houses I can absorb a downturn.

Many props are paid for so the inflated rents are FANTASTIC! My cashflow is up 17% due to annual increases and turnover increases.

I have had many props for many years so the depreciation recapture plus income taxes would be approx 43% of the sale plus commissions, holding costs, etc. I am too cheap to give away almost HALF of what I worked so hard for.

Sure I could get a bunch of cash, even after taxes because I bought them low. I paid $67k for houses that now rent for $1500 plus it’s paid off. That’s a 27 % ROI. Except the renters paid off the house so really my ROI is infinite.

The house is worth $190k but only if I sell.

I AM downsizing a bit by 1031ing 2 low end old homes for one NICE home.

SID also makes a great point. Builders and making 3-4 bedroom homes with 2 baths, 2 car garage, fancy appliances. Plus smart analysts say we are 4 million homes short for the demand. High demand / short supply = my stuff is worth more.

Thanks Brad20K,...I figured you would say something just like you did. My reasons for holding are along the same lines as yours. When you work hard for something that pays handsome monthly dividends, it is difficult to cut loose of that by selling the goose/geese? that lays the golden eggs each month.

I appreciate the question Roy and the responses by everyone. you all reaffirm my thought process and decisions.

Pops was (literally) a horse trader and cattle jockey with barely a high school education. But man was he street smart.

He said it was easy, buy when all the folks are selling and sell when all the folks are buying. But he always grinned when we talked business. He said," son, your houses $#it money every month, where my cows just $#it." You are on to something!

Richard, be careful about boats. I don't remember the details but 10+ish years ago when things went south, a lot of folks at the Chesapeake Bay sold their boats at great discounts. I had a friend who knew nothing about boating but she had/has more money than sense sometimes. Someone convinced her it was a great investment plus for an hour's drive, she'd have a great get away for herself, her family and friends. Well she had to pay a "captain", the fees and upkeep were costly, etc. She finally didn't want to deal with it and she had to sell at a great loss because when she was ready to sell, everyone else was too.

Don, my position is again the same as Nicole's. We have stuff in the stock market already. And over the years we've seen huge drops along with slow climbs. Maybe the AVERAGE return over time is 10-11% but when you are retired, if you need that money to live on, you could be forced to sell at a very bad time.

Roy, think less in terms of "selling" and more in terms of "trading up." 1031 tax free exchanges are still a great way to get yourself out of the dog properties and into the nicer ones.

Why do this? Less stress. Lower turn overs. More apprecaition. Possibly less cash flow, but as you will have a ton of equity and hopefully be able to buy a few debt free this won't be as much of a factor.

A goal I created back when I started in 2005 goes like this. I want 25-30 paid off properties. The way I do this is buy 50-60 properties...let them pay down (loan amortization) and appreciate. After 15 years, sell half of the ones that I don't want to keep and use the proceeds to pay off the ones I do want to keep.

I've tweaked that strategy a bit since it took awhile to realize that Class C houses don't appreciate as much as I thought they would, but lately they have finally come roaring to life! The other issue is I'm slightly over half way to losing the depreciation I have keeping my taxes low on some of the first houses I bought 16-17 years ago. Thus, trading up may make sense as I will once again have some depreciation to offset the income.

A smart builder I know locally builds very nice Class B+ SFHs. He keeps them about 6-8 years, then sells. Why? Because that's the age when things are still working well (HVAC, water heater, roof), but are starting to nip at the line of needing to be replaced or repaired in 3-4 years. Good enough to where Buyers won't get super picky and ask for all sort of gimmies on their repair list. Seems smart to me. Turn over your inventory every 6-8 years buying brand new or fresh fully rehabbed places and you should never have to replace a roof or HVAC system again. Even a water heater should last that long! You may never have to shell out more than $500 for a repair ever again. There's some merit to that thinking.

I am down to one with a 20+ year S8 tennie. Wish I could sell it. She's not going anywhere. The market has flattened in the hood due to rate hikes ... I expect a downward trend.

Soooo if you're in a market with high-highs and low-lows dumping EVERYTHING periodically makes great sense. The downward trend will excelerate as recent buyers realize they're underwater; can't sell and can't refi and now, have to keep the PMI forever. So mail the keys back to the bank and go back to renting. Hence the exceleration.

Roy,

another thought... I hear RE investors all around me saying they are gearing up for the big foreclosure rush.

I'm not in the group.

Sure there will be some foreclosures but the banks got a lot smarter in the Great Recession and learned to work out payment plans, rehab the homes themselves and retail them, etc.

Look around...the big hedge funds are buying ANYTHING decent at full price and locally they are snatching up foreclosures for way more than a DIY investor wants to pay.

Basically the banks don't have to give away foreclosed homes like the old days.

Times (methods) have changed.

BRAD