[USER]

We are a single income household family with young kids in a high cost of living area.

Our rental is cash flowing. We have a property manager to handle it.

Low interest rate on both rental and the primary residence.
The reasons to hold onto it is the extra cash, especially during retirement when it’s paid off and eventually leave it to our kids.

What would be the reason(s) to even start considering selling the rental?

Not a Dave Ramsey fan.

We sleep well at night.

[Ian]

I’m a fan of real estate and have been through the process of learning when to sell.

For a real estate investor sell decisions hinge on your current RoE (return on equity), and the quality of the investment opportunities in front of you.

Your RoE tells you how hard your money is working for you.
RoE = total return / equity.

If you own a 500k property with no debt on it, and that 500k property gives you an annual return of $25k, your RoE is 5%. If you took that 500k and invested it in an index fund you would get a better return.

If you own a 500k house and carry a mortgage of 400k, and after servicing the debt and expenses your total annual return is 10k, your RoE = 10%.

Thats a decent return, but still a bit low in my opinion since real estate comes with more risk and liability than stocks.

Calculate your RoE, make sure you factor in the cost of agent fees and what not if you sell, and then determine if you will get a better return somewhere else if you sell and move that capital to a different investment.

If your RoE is below 10% I would consider selling. You can get at least 8% return investing in a low risk passive index fund.

There’s not much reason to own real estate if you’re not even beating low risk passive investments.

[Mindi]

If the neighborhood starts going south and either property values or rents decrease.

Otherwise I’d hold onto it as long as possible.

[Mandi]

Cash Flow. If you’re losing money including the buffer needed to pay for maintenance (roof, HVAC, flooring, exterior paint, etc.).

With that said consider the amount going to principle each month into the calculation if you’re ‘losing’ money or not.

Some people with the rent coming in and expenses going out still have the extra few hundred to cover tax liability and maintenance needs.

If you’re at an exact break even and you don’t have the discretionary income then that’s might be cause to walk away. Hope that makes sense.

[David]

Cash flow is nice and pays the bills but that’s not where you make money in RE. Appreciation is where its at. All that being said, the most important aspect of RE is location.

If the location is in high demand and growing and is expected to keep growing, even the crappiest of piece of RE will make a lot of money.

As long as the area is still great, I would never sell.

However, I would occasionally cash out and releverage the property to maximize return on equity and purchase more RE.

[Dave]

If you gave low rate 30-year loans then staying the course is likely your best bet.

Over time rents will rise much faster than costs and your cash flow will accelerate.

Add to that the leverage on real estate appreciation.

And the cash flow being tax free until it gets huge due to depreciation.

[Josh]

The only way I will sell any of my rentals before death is if I do a 1031 exchange into something bigger or something more passive.

If my kid wants to sell them the day I die, she will pay no federal taxes on them!

[Author]

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