I am optimistic about real estate. But I recently sold another rental property. This inconsistency between thought and action can be disturbed, even to the productivity of creating wealth. But that doesn’t necessarily mean it.
Because while maximizing returns is a big goal on your path to financial independence, it is not the only goal. Sometimes, selling property, despite being optimistic about the market, is the right move for you Life Comprehensive.
In my case, let go of the rent simplified stuff. I always felt that managing three rental properties in one city was my limit. But when I bought a new home in 2023 and decided to rent an old one, I crossed that threshold. It’s like buying huge inventory positions on profit margins.
A year later, when the tenant sends a notification, I treat it as a window for reset.
Why is the sales OK even if you think the price will still rise
Even if you think real estate prices will continue to rise, here are eight reasons why you can sell your property.
1) It is better to sell in a bull market than a bear market
There is a lot of pressure to sell real estate. Even if you sign a contract, any number of issues can be delayed or detached from the end. However, when you sell strength, the chance of a stable trade increases. Buyers in popular markets know there are others waiting in line. So they try to follow.
Bidding wars are common in bull markets and tend to make prices higher with acceleration features. By contrast, bear markets may be like liquidity traps, with no buyers, downward supplements and price cuts painful. Prices don’t always fall gradually; usually, they are gaping. If they do, if you are forced to sell, your home’s net worth may be phased out.
On the west side of San Francisco, it was a bull market. Local economic catalysts are attracting jobs and families, creating stronger demand. So I chose to sell to power rather than risk being forced to sell later when the market may be weak.
2) You may have had too many real estate exposures
Generally, I don’t recommend that you have more than 50% of your net worth in one asset class. Concentrated risks are real. Please see my recommended net asset allocation for financial freedom. After buying another home in 2023, my real estate exposure temporarily expanded to around 55%.
Once, I had a primary residence and five rental properties, four of which were in San Francisco. When devastating fires swept across Southern California and wiped out the entire community, I was reminded of the speed at which real estate wealth could be destroyed.
When my tenant issued a notice, I saw opportunities to reduce exposure and rebalance during the strongest sales season of the year: Spring.
Even after selling a property, I still have enough exposure to benefit from the growing demand in the region. However, if we move to Honolulu, I want to further reduce my leased property by two.
3) You try to be a landlord and don’t like it
Long-term holding of real estate is one of the best ways to build wealth. Renting your property helps you ride the inflation wave while hoping to generate positive cash flow.
But being a landlord is not suitable for everyone, it doesn’t matter. If owning a rental property will reduce your quality of life or consume the psychological bandwidth you would rather invest in elsewhere, then sales is a reasonable option.
I gave it for a year. The tenant is not bad, except for the piercing faucet nozzle, which causes its leak and neglected front yard. But even small problems magnify as you keep moving forward psychologically.
I feel that I’m lucky that there are no major problems with the house this year, such as leaks. So once they issued a notification, I chose not to follow my luck further. Although, if they don’t give a notice, I’d be happy to continue renting out the house to them.
4) You may get bigger returns elsewhere
With a 10-year term yield of more than 4%, I can almost be as risk-free as rent. The troubles and risks of becoming a landlord do not justify a moderate premium on gains.
For me, I need to be confident of getting a return of at least 8%, above the 4% premium of the risk-free rate. Given that the loan-to-value ratio is 43%, this is certainly possible. But I am not over 80% confident.
If you can redeploy the equity into a similar or better performing asset, or simply diversify your risks, it’s worth considering. Even if you can’t match the rewards, other priorities that free up time and energy have real value.
In addition to Treasury bonds, I found both residential commercial real estate and private AI companies attractive, giving me at least three compelling options to reinvest in earnings. Shortly after the home sale, I didn’t expect a 20% correction in the S&P 500, which created a fourth attractive investment opportunity.
Real estate can link large amounts of equity together, especially in high-cost markets. If you are sure to make better use of the funds, it may make sense to unlock that capital and increase productivity usage.
5) You are eligible for duty-free home sales exclusion
If you live for at least 2 years in the last 5 years before the sale, you can exclude capital gains up to $500,000, and if you are single, you can exclude $250,000. This is the 121th capital gains exclusion rule. Rent the property for one year and then the sale still reached 5 years of 2 years of use test, so we are eligible for all exclusions – Minus depreciation reclaim.
Not having to pay capital gains taxes for up to $500,000 is a huge benefit, especially if you are in the high income stage. If you are approaching the end of a 5-year window or the tax-free appreciation limit, it may make sense to sell and lock in this tax advantage.
6) You found a better home and moved emotionally
Some houses have achieved their purpose throughout your life, and that’s enough. During the pandemic, we purchased properties we sold as “home forever.” It is a shelter that greatly improves our lives for three years.
But deep down, it is always a step along the property ladder. After moving out and renting for a year, we are no longer emotionally attached. We leave new memories in our new home and no longer miss old memories. That emotional detachment makes sales easier.
7) You want to reduce responsibilities and headaches
Owning a rental property puts you at potential legal, financial and security risks. These may include tenant injuries, discrimination claims, habitability lawsuits or violations of city regulations. Even with a good insurance and real estate manager, the responsibilities and stress will be taken.
After years of landlords, you may decide to reduce your liability more than the extra cash flow. Now, a clean export can prevent future legal or financial chaos.
I have never had tenant problems in my 22 years as a landlord, a record I attributed to thorough screening and reliable lease agreements. That said, I recognize that every new tenant brings new risks. In this case, the home we sold was rented to multiple roommates instead of one family, which added another layer of complexity.
8) You are preparing for lifestyle or career changes
If you plan to make a major change, such as early retirement, relocation to a new city, downsizing, traveling more or changing careers – you may want to simplify your financial position and reduce asset management responsibilities. Having our first child in 2017 was the main reason why we sold real estate at that time.
When considering this latest sale, I prioritize time freedom and location flexibility. Selling two to three rental properties before relocating to Honolulu in 2032 will be a challenge, especially in the case of a market shift. By selling one now, I reduce the pressure to sell multiple properties later.
This step has eased my mental burden and improved my overall well-being and lifestyle.
Can not always optimize the maximum return
Even bullish real estate will not make you unreasonably sell your property. It makes you a realist who understands personal finance is personal. Sometimes the right decision is to simplify life, rebalance risks, or just restore peace of mind.
We don’t always need to squeeze out the last dollar from each asset, especially if we get enough wealth to be satisfied. Sometimes, locking in victory is the smartest move you can make.
Reader, have you ever sold a property even if you think the price will continue to rise? If so, what prompted your decision? Have I not sold any other reasons in this post?
If you want to passively invest in real estate, please check it out Fundraising– Private real estate platform I like. Fundraising is focused on high-quality residential and industrial properties in the sun, where valuations are lower and output is higher.
Although today’s economy is stronger and household balance sheets are healthier, some commercial real estate valuations are still falling to levels near the lows of the 2008 financial crisis. Let it be an opportunity, I use my household sales revenue to average the cost of the dollar for the industry, while the price is still attractive.
Fundraising is a long-term sponsor So far, the Financial Samurai and I have invested over $300,000 in them. About half of my investment in fundraising is Venture Capital Products Because I want to build a large number of private AI companies.
“Why sell when you’re bullish on real estate prices” is the original Financial Samurai. all rights reserved.
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