To Sell or Not to Sell: Investment Properties by Managing Director, Listing Division – Virginia Gergoff
Many times sellers ask us whether they should “sell now” or hold on to a property and rent it. The answer as in many cases in real estate is, it depends. Putting our dreaded TOPA ramifications aside, the main question we would ask our sellers is: what is your goal?, and what would you do with that money if it is not invested in real estate?. Let’s look into these two questions:
Your current investment property is most likely the result of: i) you lived at the property and moved to a new primary residence, or ii) you bought it as an investment property. If you lived at the property and are now thinking about selling you have to consider whether you have lived there 2 of the last 5 years, as the tax implications would be different. If you bought it as an investment property, the question would be, why would you be interested in selling it now? What would you do with the money that you have invested in this property?
This bring us to our second question. It has been historically proven that real estate appreciates over time. However, the rate of appreciation, and the time spam varies depending on many factors, as for example the overall performance of the economy, the location, and condition among others. By keeping a rental property you are building equity while someone else is paying your mortgage. Assuming the property rental income covers all the expenses, it makes sense to continue renting and continue building your equity.
However, there are two very specific instances in which selling would make more sense: i) predictions of a down turn in real estate prices. In this case, you might want to cash out now versus waiting for the economy to recover and for prices to go back up, ii) Whether you have a better use for this money. We tell our sellers that it makes sense to sell if they either: plan to use this money to pay for a life changing event (retirement funds, kids college education); or if they can invest this money into something that results in a higher rate of return. Cashing out and using the money for other—more productive purposes—is your best case scenario.
We at MG residential have vast experience working with home owners and investors, please call us at 202.243.7777 if you want to discuss this topic further.