[Carol]

I have a rental property with 2.25% interest rate. Right now it nets $600 a month that’s minus property management company. I could sell now for around $100k profit.

I understand that money today is worth more than money tomorrow.

Should I sell or hang on to it and if hanging on why?

[Tony]

I’d sell it if you still get the capital gains exclusion. At that point it’s close to a wash, but I’d rather have a simple 100k averaging +/- 7% gains in a brokerage than getting $7200 a year with a physical asset that is taking up mental bandwidth – even with the equity growth.

[Preston]

Not enough info. We need to also factor in your principal pay down each month + cashflow, and then factor in the tax impact + depreciation recapture on the sale.

Then consider in the future the money is in a brokerage account, its taxable, whereas your rental cashflow is likely low tax or tax free depending on your deductions

[Endri]

Does it net this also after all expenses in maintenance and taxes/ fees?

4% rule says you would need about 25 times 12 times 600 in the market so 180 thousand to make up for it in swr.

Plus, you are missing on the home appreciation.

Unless you need the money for some other investment opportunity doing you much more than the market, don’t do it.

[Jeff]

1) Cash on Cash Return (CoC)
This measures the annual cash flow you get compared to your total investment. Think of it as how effectively your money is generating returns.

Example:
If you invest $1M and make $85K/year, your CoC is 8.5%.
($85K ÷ $1M = 8.5%).

This shows how much your investment is paying you annually.
2) Equity Multiple (EM)

Equity Multiple shows the overall growth of your investment.
A 2x EM means you’ve doubled your investment.
Example:
You invest $1,200,000, earn $700K from the sale, and another $520K in cash flow.

Your EM is 1.85x:
(($700K + $520K + $1,200,000) ÷ $1,200,000).

3) Internal Rate of Return (IRR)
IRR is the annualized return that takes the time value of money into account.

For example, a 2x EM achieved over 5 years generally translates to an 18% IRR.

[Dan]

It depends. You can’t look only at the cash flow or at the equity. What’s the “discount rate” of the money you’ve invested?

You basically need to calculate your IRR on the property to see if it’s competitive with your next best investment opportunity that you can’t do because you own this property vs doing something else to the property to potentially increase your return and free up some of that equity, yes, even with these interest rates.

[Andrew]

We’re thinking about this with one of our properties. Don’t forget that rental income is taxed as regular income, so is it netting $3600/yr, or is it lower?

We’re thinking of cashing out, because that $3600 might really be $2700 – or 2.7% return, vs higher market growth only taxed when we sell, and set at the newly purchased stock basis.

[Aaron]

I’d make a decision like this in context of my overall financial plans and goals.

For me for example my plan was to build a large rental portfolio and to use the cash flow for various things.

So, if I was in this decision if I were to sell I would be selling to use that money to buy more real estate.

If that’s what you’d do as well then the decision is different than how it’s phrased.

It would be more about this asset vs whatever property you’d buy with the money.

If you aren’t committed to buying a bunch of real estate then you should compare what you have now to whatever investment you’d buy with the money.

[Erik]

Appreciation is where the wealth is created. What is property worth now? How is the market outlook? In our area the building could double in value every 8-12 years.

That plus cashflow will increase over time and the tenants are paying down the mortgage.

seems tight right now but if the area is good I would keep it

[Author]

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