When Is The Best Time To Sell Rental Property? Five Reasons To Consider

Let me share when is the best time to sell rental property with a logical framework. As a rental property owner since 2003, real estate is my favorite asset class to build wealth.

On the one hand, owning rental property is a great way to build wealth. Rents generally go up over time, along with real estate prices. In an inflationary environment, like the one we're in right now, owning rental properties is a smart move.

On the other hand, owning physical rental properties can sometimes be a real pain to manage. Maintenance and tenant issues pop up all the time. The more you value your time and sanity, the less you will enjoy owning rental property.

Therefore, the best time to sell rental property may be when you're simply too sick and tired of managing it. However, making an emotional decision is generally not the best strategy for wealth maximization.

The Dilemma To Sell Rental Property Or Hold

Should I Sell My Rental Property And Simplify Life?” was written in frustration due to unnecessary conflict between my tenants and their downstairs neighbor. I've had some time to think more objectively about the incident. I also talked to a couple older landlords to come to a more rational decision.

When I had no online income, real estate income was by far my favorite income stream. Now that my online income has grown, I'm becoming obsessed with the idea of being as unencumbered as possible to make money. I've compared rental income with online income, and online income has more upside.

Early retirees become totally spoiled with our time because we never have answer to anybody. So when we have to do something that's unpleasant, such as play peace keeper, we get very bummed out. (Read: “What Does Early Retirement Feel Like? The Positives And Negatives“)

As you know from previous articles, I spend an exorbitant amount of time doing research on anything that has large financial consequences. I calculate various scenarios, talk to friends and family, and speak to as many industry veterans as I can find.

After consulting with several 60+ year old rental property owners who've owned their properties for over 30 years and comparing notes, I've come up with five tangible reasons to determine the best time to sell rental property.

Math not emotion is what's going to help make the best financial choices!

Best Times To Sell Rental Property

The base case assumption is that we should own our property forever. Rents will continue to rise due to population growth and inflation, while land is finite. In a high inflation environment it's best to keep your rental properties.

Every time I think about selling a piece of property to simplify life, I think about how I'll be kicking myself 10, 15, 20, 25 years from now for selling so cheap. Just think back to where rents or property prices were just 10 years ago and I'm sure you'd agree.

Real estate almost always seems expensive at the time of purchase because real estate is almost always the largest asset you'll buy in your life time. Unless you're really disciplined by buying below your means, you'll generally tend to buy what you can afford or stretch to the max instead.

As we get older and hopefully wealthier, time becomes more of a premium over money. Rental property is the most active of my passive income streams, but the ideal scenario is to earn lots of money and seriously do nothing at all. The problem with totally inactive money is that CD returns are too low while stocks and bonds can turn violent in any given year.

If we can't hold onto the property forever by at least hiring a property manager for one month's rent as pay, then let's look at the five best times to sell rental property.

Rising rents, rising fortunes for landlords - When Is The Best Time To Sell Rental Property?

1) When your depreciation benefit runs out.

One of the best times to sell rental property is when depreciation benefits run out. Depreciation is a non-cash expense which every rental property owner can take. You can usually either accelerate your depreciation or straight-line depreciation. The most common form of depreciation is the straight-line depreciation method which is taken of an IRS instituted 27.5 years.


1. Purchase price – Land Value = Building Value.
2. Building Value / 27.5 = Annual allowable depreciation deduction.


1. $500,000 purchase price – $200,000 land value = $300,000 building value

2. $300,000 building value / 27.5 = $10,909 annual allowable depreciation deduction.

3. Current annual rental income is $20,000 (4% gross rental yield).

4. Taxable rental income if we include no other costs like property tax, maintenance, and HOA costs for simplicity purposes = $20,000 – 10,909 = $9,091.

5. Total tax savings if you are in the 25% federal tax bracket = $10,909 X 0.25 = $2,727.

Depreciation Doesn't Last forever

Deprecation expense is all about saving on taxes. You may be able to select accelerated depreciation instead, which basically front loads the depreciation costs to get a bigger deduction. Best to check with your accountant and state laws. Here is the IRS page on depreciation which doesn't do a very good job explaining because it is so damn long and confusing!

The depreciation criteria basically states that you should aim to hold on to your property for the amount of years you are allowed to depreciate. While I was in the 36% federal tax bracket (39.6% current equivalent), I maximized depreciation and all my rental expenses. As a result, I was making a net loss on my main rental property. Now that I've started a company and make less reported income, I'm much more willing to earn income from my rental given my lower tax bracket.

Depreciation Recapture

It's important to note that depreciation amounts get adjusted back during time of sale (aka depreciation recapture). For example, if you took 20 years of depreciation at $10,909 a year, you would reduce your cost basis of the $500,000 purchase price by $218,180 (10 X $10,909) = $281,820.

With a lower cost basis, you would pay more taxes due to a higher difference in sales price vs. adjusted cost basis. Depreciation isn't free money in the end. This is why you need to be proactive in your estate and tax planning.

One final point. Once you exceed ~$160k AGI (married filing jointly) you lose all rental losses as rental is considered a passive activity. You still accumulate the Net Operating Losses until you dispose of the property, or when your income is below that threshold. But you will not get any tax benefit on an annual basis. Hence, when it's time to sell, make sure you make less than $160K.

3) When you can tap your 401(k) or IRA at age 59.5. 

Another good time to sell rental property is when you can finally tap your tax-advantage retirement accounts without penalty. Once you can tap your retirement funds, you no longer need as much income. Further, you may end up paying a higher marginal income tax rate.

By age 59.5, hopefully everyone will have amassed a healthy chunk of wealth in their 401(k) or IRAs. Please see “How Much Should I Have In My 401(k) By Age” and “How Much Should I Have Saved In My IRA By Age” for some progress guidelines. The idea is to receive the income and taxation benefits of a rental property until the age where you can withdraw from your 401(k) or IRA penalty free.

As of now, there is a 10% early withdrawal fee on your 401(k) or IRA. The idea is to let your money compound over time. Prevent the temptation to spend your money now.

A perfect time to buy rental property is therefore around the age of 32 due to the 27.5 years of straight-line depreciation. By the time you are 59.5, you can probably sell your rental property for a handsome profit. You can also start taking penalty free withdrawals from your 401(k) and IRA and live a carefree life!

3) When you can begin collecting Social Security and Medicare.

You're welcome to delay the sale of your rental property if you can hold out long enough for Social Security. The earliest you can currently start accepting Social Security is age 62. I'd be more conservative and expect the earliest age to accept to increase to 65 by the time you retire.

Receiving rental property income while receiving distributions from your 401(k) and IRA for the next two to five years isn't a bad idea after age 59.5. By 65, I'm sure most of us will really want to simplify life. If I'm thinking of simplifying life after 10 years of rental property ownership, I know I'll be longing for a simpler life 30 years from now!

Here is the ideal age to take Social Security. Finally being able to collect Social Security relieves income stress. It's automatic and guaranteed. Therefore, you can feel better selling your rental properties.

The average Social Security benefit is about $1,200 a month. However, the maximum Social Security benefit is around $3,100. That income can replace a good amount of rentals.

4) When there's an easier way to own rental property

The main reason why I sold a rental property in 2017 was because I was becoming a first-time father. I didn't want to have the stress of owning this rental property weigh over me. The rental property had constant turnover due to having 4-5 roommates who always threw house parties.

After selling the property, I reinvested $550,000 of the proceeds in real estate crowdfunding. Platforms like Fundrise and CrowdStreet, make it easy to invest in private real estate across the country. I transferred capital from expensive San Francisco, to faster-growing and cheaper cities like Austin and Memphis.

Thanks to technology and the work from home trend, I believe more people will relocate to 18-hour cities to save money. As these 18-hour cities attract more people, they will grow their infrastructure and attractions as well.

The older and wealthier you get, the more you want to simplify life. Diversifying your property holdings and earning more passive income are great moves. Personally, I've invested $810,000 in real estate crowdfunding since 2016 and have received almost $500,000 in distributions.

Real Estate Crowdfunding Dashboard

5) When cap rates are no longer attractive

If there is a lot of inventory coming to the market and the cap rate premium over the risk-free rate of return is not sufficient, you may want to sell your rental property. The cap rate is generally calculated as the ratio between the annual rental income produced by a real estate asset to its current market value.

For example, let's say your property trades at a cap rate of 3.5%. It's appreciated handsomely over the past 10 years by 120%. Meanwhile, the 10-year bond yield is at 3%. Is the 0.5% premium over the 10-year bond yield worth the headache of owning your rental property? Maybe not if your property doesn't continue to appreciate.

It may be better to sell your rental property and reinvest the proceeds in other cities with higher cap rates. Cap rates in the heartland are easily above 5%. Some go as high as 8% – 10%.

When it comes to real estate investing, consider following my BURL Strategy. In other words, Buy Utility, Rent Luxury. It is one of the best real estate investing rules to follow.

Own Your Rental Property For As Long As Possible

Rental property should be a core part of anybody's passive income stream portfolio. Read “Net Worth Allocation Recommendation By Age And Work Experience.” You've essentially got two parts offense that makes up 60-70% of your net worth, and one part defense (CDs) which can turn to offense when buying opportunities arise.

There will come a point in every rental property owner's life where they just don't want to deal with even a innocuous e-mail inquiry from a tenant anymore. Although I'm only in my mid-40s, I'm living more like a typical empty nest 65 year old retiree.

I'm still considering selling one rental property before I relocate to Hawaii. However, now that there are exact ownership targets (the number of depreciation years left, age 59.5, and age 62), I'm going to do my best to own until my depreciation runs out.

In addition, I'd like to own my rental properties until my kids turn 25 in 2041 and 2043. I treat my rental properties as a sort of career insurance for my kids, just in case they can't get jobs and can't afford a place to stay. If so, they can manage my rental properties and/or live in one of them.

Building passive income really is like a game and I love this newfound challenge!

Invest In Passive Real Estate To Live More Free

Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile.

As I've gotten older and wealthier, my time and patience for dealing with physical rental properties has declined. As a result, I've invested more of my real estate assets into private real estate funds for more hands-off investing.

Diversify Your Real Estate Investments

Take a look at Fundrise, my favorite real estate investing platforms today. Fundrise began in 2012 and is the creator of private eREITs. Fundrise primarily invests in single-family and multi-family properties across the Sunbelt, where valuations are lower and yields are higher.

When I sold one rental property, I reinvested $550,000 of the proceeds in private real estate. It's been great earning income 100% passively without having to deal with tenants! Currently, my real estate investments account for roughly 50% of my current passive income of ~$300,000. 

Another private real estate platform to consider is CrowdStreet. Crowdstreet is a marketplace that mainly sources individual commercial real estate deals from various sponsors around the country. This way, you have more customization to build your own select private real estate portfolio.

Make sure you diversify your portfolio and do your due diligence on all the sponsors. Look up their track record, their management, and whether they have had any blowups before. Although CrowdStreet screens the deals, you have to do your screening as well. 

When Is The Best Time To Sell Rental Property? is a Financial Samurai original post. We're currently in the ideal environment for real estate investors. Take advantage, especially before foreign real estate investors start buying up our property as Covid restrictions get lifted.

66 thoughts on “When Is The Best Time To Sell Rental Property? Five Reasons To Consider”

  1. After selling the property, I reinvested $550,000 of the proceeds in real estate crowdfunding. Platforms like Fundrise and CrowdStreet, make it easy to invest in private real estate across the country. I transferred capital from expensive San Francisco, to faster-growing and cheaper cities like Austin and Memphis.

    Hey Sam, thanks for sharing. Was this a 1031 exchange into Fundrise and Crowdstreet?

  2. I am 68 married but separated and file tax separately. Should i sell my residence and live in my rental. Then after 2 yrs sell my rental and avoid capital tax.

  3. Hey Sam, not sure if you are still following comments on here, but I will leave this here for anyone else’s input as well. We recently converted our former primary residence to a rental when we bought and moved into the other half of our twin home. We did not live in the first place for 2 years, so selling would typically result in capital gains tax. However, we will be adopting 3 children from foster care this year and will have a very large tax credit that we can use over the next 6 years (this year and 5 years of carry forward). My thought is to continue to rent the property for the next 5 years and sell in the last year that we would have the credit available. This would allow us to offset our capital gains tax with the remaining credit. Does that make it worthwhile to sell? The other pertinent piece of info here is we have it on a 30 year 2.875% mortgage, which started about 2 years ago.

  4. Hey everyone, I am new to the investment field and really need help on figuring if I should keep or sell my rental (family finance reasons). Is there anyone willing to hear my story and give me advice? Much appreciated? Thanks, MIke

  5. Hey Sam –

    Love this article. Simple. Direct. And helpful. Thank you.

    I am out on a bit of limb here and wondering if you wouldn’t mind responding with your thoughts. I have a rental in a good place in Salt Lake City. We only payed $8000 down 5 years ago to purchase it and have a balance of $255. We have a cash offer from an investor who needs to spend some cash before the years end and has an offer of $375. We do net about $1100 profit a month from this which is fantastic. However the short term bump in income could/would allow us to start a company without having to find outside capital. I am only 31 and feel as though time is on my side. My wordy question is in your opinion from a financial standpoint is the short term gain with increased risk worth the long term loss of the security from the property?

    A lot of variables but a basic outside suggestion would be much appreciated.

  6. Loma Martin

    I have 2 rental properties for 40 years,paid for and completely depreciated. Is it true that they are worth nothing and I can give them to my daughter with no tax or other expense to be paid. Just go to the court house and change the deed?

    Thank you,

  7. Haneen Rabie

    Hello. I’m assuming over time one would need to renovate in order to ultimately sell at highest value and even in order to keep rental rate towards top of market. Thoughts? Is there a calculator for this or do you consider it negligible? Thank you

  8. How do you know that? We have another property that is actually producing $300 a month and is in a good area, so it doesn’t stress us quite as much, but our friend and RE agent says we should sale now as well, because interest rates will go up and it will be harder to buy a starter home (ours is), and to reduce our stress levels. We are 4 years from retirement, so we still need the tax write offs, but don’t want to be stuck with it when the market falls again.

  9. Our rental is in an undesirable part of town (in Sun City, California), currently needs at least $10,000 in repairs to either sale or rent to decent tenants. We currently loose money to rent it. Our house payment is $1615 and the current rent is $1550. Maybe we could get $1650 after fixing it up. If we refinance it will bring the cash flow to $250 with a $6000 fee, so that reduces the cash flow to $150 for the next five years as we pay off the refi. If we fix it up and continue to rent, we will have more fix up later in order to sell, but may gain some appreciation over the next 3 to five years. We HATE being landlords, it creates undo stress on our psyche and relationship.
    We could sale as is, and could maybe get $50k minus fees–probably $30 k net. Should we sale as is and get rid of the headache as soon as possible, fix it up some to get a little more for the sale (how much do you put into a property in this type of area?, or rent for a a few more years in hopes the market appreciation will go up? Please help!!!!!!!!!!

      1. So should a senior who is retired sell their rental?
        From rental tenant Positive cash flow , little upkeep .
        Lots of capital gains !
        My accountant said on a $400,000.00 sale I would come home with 300,000.
        I live in another apt I own .
        Both Apts in nyc
        Rental in Bklyn , life in Manhattan.
        Little funds left over after purchasing a manhattan apt!
        I really hope u can respond to this as the lease of the tenants r up soon.

  10. Hi Sam:

    I have a home that I lived in since 1986 that I still own. In 2009 I rented it and went to live with my boyfriend at his house. Now the renter’s lease will be up in May 31, 2016. I am going to sell it to give my son money to buy a house from the profit. Do I have to pay all the capitol gains taxes from original price of the home in 1986 of $113, 900 to possible selling price of $215,000? I still have a mortgage on the house of $144,000. Do they subtract the mortgage from the selling price? Realtors fee too? Also, I filed from the property acessment that is sent out yearly that my value of the house was not $157,00 but $137, 00 for 2015 and 2014. Is this the depreciation you are talking about? I am going to be 65 in two weeks (Feb 21, 2016) and still working so I don’t know if I will pay capitol gains tax when I sell the house this year after May 31, 2016. Help me.


  11. Pingback: What Type Of Investment Property Should I Buy? Single Family Home, Condo, or Multi-Unit | Financial Samurai

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  13. Wrong… The laws have changed and living in your rental house for 2 years out of the last five years does not make it tax free. See the link below:

  14. Lets say you have one rental property and you live in your own place. What happens if you move to the rental property and live there for a few years before selling it.
    I am soon buying a house in the bay area. My plan is to buy another house (retirement home) in a few years and rent it out. Wouldn’t that help with reducing some of the capital gains tax encountered when it is eventually sold?

  15. I have also read that the month of the year when you are going to sell your property, can also affect your deal. Selling in the spring and moving in the summer is a perfect arrangement for families. Families like to move during the summer to prepare for the new school year. The weather is warm and accommodating for moving and relocating. The winter season isn’t a favorite for homebuyers to view homes due to the cold and the holiday season but holiday ornaments add charm and help homes sell during the winter season. But of course, thanks to the online websites we can sell our property every day. For example, I have posted my advertising with the photos and house description at localmart.com and then many people called me to know more about the house. By the way, I sold it in winter))That is considered not a “perfect time” for selling.

  16. Depreciation…
    I’d suggest that over time, it’s a good idea to check in with value and the current depreciation of the subject property. I’ve found that often, people own investment real estate and over time the amount of depreciation in comparison to the value and the rents is less than when they purchased the asset. There are times, for certain investors that a sale and then reinvestment into another property provides them signifncanlty more depreciation. The cash flow may be the same, but with new purchase the depreciation amount may be much larger.

  17. Hello All,
    I would keep this as simple as possible, sell your property when you have an acceptable offer.

  18. Sam, I’m sure this thought has occurred to you, but I haven’t seen it in your posts or in any comments. As you appear to want to relocate away from SF sometime in the nearer future, to a state with no (or low) income tax like WA or HI, what if it played like this…
    1) sell your primary residence, to capture the $250K (or $500K, depending on domestic situation) in capital gains and pay zero taxes.
    2) move into this condo, where you have lived before and purchased well before the runup in SF property values, and stay for 2 of 5 years. Sell, and capture the $250K (or $500K) cap gains paying zero taxes (after resolving captured depreciation tax advantages, where eventual sale profits would be taxed at regular income).

    The downside is opportunity cost for future property value increases, value of imputed rent on primary, and cashflow provided by rental. Upside is, you remove risk of property value decline, tenant drama, vulnerability to taxation changes, and lastly the illiquid nature of real estate. In addition, you will have the free cash to invest as opportunity arises.

    You may have reasons to stay in SF for the time being (not asking for details, and like all your readers, respect your privacy), but if now, or in the future, you want the flexibility to relocate would this be a possible gameplan?

    1. When the time comes, living for 2 out of last 5 years to save on taxes is definitely what I plan to do. There’s just an opportunity cost of NOT renting out the rental for 2 years that must be compared to the tax savings.

      The conclusion I have for myself, and every landlord is to basically not sell for as long as possible, or at least until the depreciation or age limits have been reached. It’s all about generating that nice cash flow at the end for financial freedom.

  19. Hey Sam,

    Can you share advice about buying rental property located in an area where you don’t live? I live in a high cost of living area, and it would be more affordable for me to buy rental property somewhere cheaper. I would probably see a better profit/% of income ratio.

    Is there too much overhead and additional stress if I buy a rental property further away from me?

  20. I didn’t realize there was that 27.5 year aspect of depreciation. Makes sense now. We often only think about the purchase and holding tax implications of having property and not as much about what the impacts are when it comes time to sell since that’s usually not on our radar. If you’re going to hold your properties long term hiring a property manager could take away a lot of the pains and hassles.

  21. All good points! Like all investments, yo need to think about the best use of invested capital. Don’t misunderstand, I love rental property, but it is not the only form of investment as you well know. You age also has an influence on you decision too.

  22. Dee @ Color Me Frugal

    I was glad to see that the conclusion was to own it for as long as possible! That’s totally our plan for our rental property, and we are hoping to add more.

  23. CPA here, and also someone that owns a multi-family rental. In regards to your depreciation benefit above, you missed an important point. Since by it’s nature rental real estate is deemed to be a passive activity, once you exceed $150k AGI (married filing jointly) you lose all rental losses. Not exactly a big number for two professionals (or one for that matter).

    You still accumulate the NOL’s until you dispose of the property, or when your income is below that threshold. But you will not get any tax benefit on an annual basis

    1. The $150K income limit is a very important point indeed. Hope that income limit goes up over time. It has to due to inflation.

      Glad you also brought up rental losses, which serves to counteract depreciation recapture (Write2Reality, want to step in here?) at time of sale. Hence, the goal is to definitely make less than $150K at time of sale.

      Thanks for adding Matt.

      1. Another thought as well, if it is a single family home rental, is living in it for 2 of the 5 years prior to the sale. And getting the 250k (single) or 500k (joint) capital gain deduction.

      2. Matt is absolutely correct on the rental losses being passive and ultimately deferred until you sell. These accrued losses effectively offset the ordinary gains caused by the recapture as the losses go from passive to active at the time of being sold. The 150k AGI limit only is in effect for the $25k rental income loss in each year of ownership, and doesn’t apply when you sell that property as it no longer is “passive” in the year sold. Those losses still accrue and are available to offset gains when you sell.

        Ultimately, you are deferring some of the tax benefit (e.g. any losses) until the time of sale, counteracting that allowable depreciation scenario.

        All that being said Sam, since you own a properties that cash flow like champs, odds are you aren’t creating passive losses and aren’t affected.

  24. Sam – I’m using your allocation models from one of your previous posts. I’m going for the Self-Belief framework and it’s saying I’d need to scale back a bit on real estate and invest more in my X factor, which I’m starting to do. Why not just stick with that?

    1. Fantastic you are bringing in the Recommended Net Worth Allocation post into the discussion.

      For you, that sounds great to scale back if RE is above the recommended allocation. For me, my X Factor, from a income basis is growing much faster than RE so I’m considering focusing where growth is greatest. As my X Factor grows over the years, RE naturally becomes a smaller portion of my NW, which means I should ironically be buying MORE RE to keep the ratios the same.

  25. Hi Sam

    I don’t think the right time to sell is when people get sick of dealing with tenants. To me, that sounds like an excuse, not a reason. There’s always property management companies that can take up the slack. You may have to go through a few to get the right one, but that’s all part of it.

    Also, as another poster said, I also like the idea of notes as a supplement. Just a couple of weeks ago, I started investing in them and am predicting double-digit returns and no tenant hassles.

  26. I think there will definitely be a time that comes when you want to unload your rentals. For each person, this exact time will vary. If you get to the point where you feel too encumbered, it might make sense to step back. That, or hire a property manager and let them take care of EVERYTHING.

    If the property cash flows tremendously in a spectacular area (like San Francisco) I would be very, very reluctant to sell. If you have property in the absolute best of locations, it’s like sitting on a gold mine, literally. Not only do you get awesome cash flow, but insane appreciation as well.

    I would also think about selling if I wanted to access insane appreciation + downpayment. By doing a 1031 exchange you could sell and not have to pay a penny in taxes. But this would require you to still buy more property… A lot of people sell residential units and 1031 into a commercial building. As you get older, you probably don’t want to deal with tenants on a regular basis, so hiring out a PM might be the best option.

    When I get older, and am burned out, I’ll probably just start doing notes instead. No more hassle of being a landlord, but still collect monthly cash flow.

    1. I’ve gotta disagree with you, FI Fighter.

      I used to think this way too, but after doing the research, it’s convinced me otherwise. The rents in San Francisco (and most of the Bay Area, really) are up there, but it’s more than offset by the overinflated prices. Because of the price-to-rent ratio, your money will go a LOT further in nearly any other area in the US, with the exception of maybe Manhattan.

      Here’s an example: I have a rental in the East Bay here that rents for about 1800. For the exact same purchase price, I can get almost a thousand dollars extra rent a month by moving that money to a comparable neighborhood out-of-state.

      Maybe the appreciation is better, sure, but equity doesn’t put food on the table.

      1. Hey Jason,

        I hear where you are coming from. Actually, I’m a Bay Area investor myself and own two properties locally. So, I’m all too familiar with the price-to-rent ratio that goes on around here. This is a reason why I’m also investing out of state. One of my out of state properties rents for the same amount as my Bay Area property, and I bought it for 1/2 the price!

        So, yes, definitely your money will take you further out of state, no question. However, it’s also important to consider downside risks. For myself, I don’t want a portfolio full of properties just in the Midwest. Sure, they cash flow great, but let’s be real, the job growth, rent stability cannot compare to what you find in the Bay Area. As a local investor, it’s a great feeling to know I can put an ad on Craigslist and get a qualified tenant that same night.

        Appreciation doesn’t put food on the table. So if you have a single Bay Area property that has shot up considerably, it may be wise to cash out. No disagreement there. However, if you were one of the lucky few who bought a property way back when and have not only insane appreciation but also insane cash flow, maybe you don’t want to sell? I recently met a girl who’s family owns a 7 unit apartment complex in SF. The basement alone rents for $5000/month. It’s owned free and clear. Why would you ever sell? Demand is through the roof…

        However, if you’re just starting out (like me), and don’t yet own too many properties in your portfolio, then yes, it probably makes more sense to sell so you can access the equity and generate much higher cash flow.

        So, it really depends on your situation. To accelerate cash flow, yes, it makes sense to sell and invest elsewhere. If you already have a well rounded portfolio, and the high priced properties still cash flow great, perhaps it wouldn’t be the best idea. In a way, you’re already set, so you might as well sacrifice some returns for the very best of location.

        I wish I had this problem!

        1. Hi there FIFighter

          Yes, I can see your point – if your investment cashflow already covers everything you need and more, then it doesn’t really matter what you invest in. Just keep the units occupied and you’re good. But I’m really used to looking at things from a very “active investor” point-of-view, where the goal is to expand cashflow as fast as possible.

          Eventually I hope to get to this easier mode of investing and the numbers tell me it’s happening. But, personally, I can’t imagine this as a reality any more than I can imagine ANY of what’s talked about in this blog: retirement, having a lot of time to myself, not worrying about money, all of that seems like complete fantasyland.

          But, each day I still diligently do the actions, just in case the tall tales are true.

      2. I just can’t see myself owning in areas that I wouldn’t want to live. This has been one of my buying principles for a long time now b/c I think worst case scenario, what if I have to live in one of my rentals for several years. If great, then that’s a great worst case scenario.

    2. Notes are a lot less hassle. I personally think real estate as an investment is worth the hassle (but maybe not forever); however, I’ve originated mezz notes and get really nice returns – you might like it, considering your background.

    3. I think you’re about 10 years younger than me right mate? If so, just give it 10 years and I think you’ll notice your enthusiasm of being a landlord change, especially if you find other means of making money e.g. online.

      I will probably try a prop manager first for a couple years before selling, just to make sure it’s worth it. In 17.5 years, I’m pretty sure the cash flow is going to double by then. Might be hard to get rid of them so we’ll see.

  27. Hey, would you look at the depreciation recapture! ;)

    Just as an additional note to your depreciation recapture, those extra gains caused by the recapture are treated as ordinary income, not capital gains. A very crucial part of tax planning for when you sell your property.

    All that being said, I agree with you as far as your selling when the depreciation runs out as being a potential time to sell. You’ve maxed out your depreciation benefit, so now the tax benefits have been a bit diminished. However, considering the substantial tax gain you would have, it might be worth selling in a year with planned low income. There are plenty of ways to accelerate or defer income, so timing a sale to coincide with a lower income year could generate significant tax savings as well.

    Personally, I would only sell if I NEED the capital for other reasons. A fully paid-off and depreciated property will be cash flowing tremendously, and will be taxed like any other income (outside of gains and dividends), so I’d just continue to reap the rewards of the purchase and use it to help fund my retirement/wealth preservation for the next generation.

    1. I knew I could count on you for highlighting depreciation recapture! The plan is to totally time a sale so that I’m a pauper one year. It’s more easy to be a pauper with a business than it is working for a company too.

      The default assumption really is to never sell. But, if there are times to sell, I think these three reasons are as good as any. I would bet these three reasons help EXTEND the average property owners ownership rate.


      1. Totally glad I could come through for you! Still working up a tax post for you btw – got my outline started.

        Totally agree on becoming a pauper for a year. Pretty easy to do with a business in fact. Income manipulation is pretty much standard for most small businesses. And for you, simply buy that Range Rover for business, and voila, some extra offsetting bonus depreciation expense! :)

    2. Can you please explain the statement you made, “…those extra gains caused by the recapture are treated as ordinary income, not capital gains.”? What do you mean by that? The way I understand it, when you sell an investment property, all the equity you make on the property is considered capital gains, not ordinary income, and is taxed accordingly.

      1. Let’s say you pay $300K for a $200K house on a $100K lot and depreciate the house (only) over 27.5/2 years and sell for $400K. The depreciation recapture is $100K (half the original house), as ordinary income. and the $400K minus the $300K total original purchase price is a long-term capital gain.

        One way around it is to buy another “rental” for $400K, then decide to convert it to a primary residence (say, a day later). You’ll still have the taxes hanging over your head, but you can defer paying until you sell the property, possibly many years later.

        That’s kind of the path I’m on right now.

  28. I’m thinking about selling our rental properties too. Our living situation is changing a bit and we need more room. Selling the rentals and trade it in for a new house might be easier for us. I’m getting tired of dealing with tenants too.

      1. Arturo Perez

        We own a townhouse in a city we lived in before – I managed it directly for about 5 years when we still lived there, and hated it. When we moved away, we had to give the property to a PM as the value was too low to be worth selling. Best thing I could’ve done! We’re still cash positive giving the PM 8% a month, and now I only think about the property twice a year at most: tax seasons to do the paperwork, and every now and then when the PM calls with a tenant moving out and another moving in, and suggesting rest adjustment.

        Aside from that, money is deposited into my bank monthly, mortgage and HOA get paid out of that account, and I don’t even need to look at it.

        If you really dislike all the BS that comes from being a landlord, but you like the RE investment – use a PM. They’re well worth their 8-10%.

        1. I would have to agree PM’s make the world of difference. We own 3 homes in SW FL and although together they don’t make a ton of money due to the mtg loan on one of them, we still have passive income that will only grow as we age and the depreciation on our taxes makes up for the rest. The only advice i can give about PM’s is shop around and ask for references! I interviewed 3 and the only place still managing property is the one i chose to do business with. They have been life savers!

  29. From an IRR stand point, my real estate investment from 11 years ago has been by far the best investment I’ve made in my lifetime. I will absolutely sell it though one day as it is a means to an end. It is funny because I had this conversation yesterday with one of my business partners regarding a new investment we are looking at. This time it is a large multi-unit apartment building that we are being offered the “opportunity” to go in side by side with a gentlemen that has made literally a fortune doing this…the guy is 83 years old. It think it is simply just in his blood, he lives for this stuff and is happy to teach the next generation. Now has more money than he’d ever spend, donates millions annually and is all around a great person…I asked the question why he is still doing it and it is just because he loves it. I’d say the time to sell, barring some market anomaly or major life event you need the cash for (or quit your job for that matter) is when the burden shifts over the 50% line of being more of a burden than it is worth to you to keep doing it. The wealthiest people I have encountered are the ones who got rich slowly and then suddenly woke up at 55 and had a $25M net worth…then kept doing it because it was fun to them.

    1. So where is that line of burden vs. worth for you? How should people evaluate where that line is for them?

      1. My line is pretty high…It would take a hell of a lot for me to let it go. Having a signed leases going out 10 years makes it hard to even consider it. There is no investment that I know of that I could come close to making a similar return net of taxes. I hope I never end up selling.

    2. I would never consider being a landlord fun, so that fella is lucky. I spoke to a 74 year old fella who bought his 13-unit building 34 years ago for $690,000 and received an offer for $6.3 million this year he turned down. He said he’d just leave the property to the kids to deal with. Lucky kids! I bet they will probably just liquidate when he’s gone.

      1. I think guys like the one you and I know long, long ago passed the point of never needing money again…and they are o.k. with paying lots of fees to have other people handle the problems. So they make $3.2M a year passive income vs. $3.7M, hell they way they look at it is Obama pays for half of it anyway because of such high tax rates. (I can’t imagine living in California, I think Phil Mickelson was right on what most people think when he spoke out).

        I think you’ll probably do the same thing Sam and let your future kids worry about the spoils of your success.

  30. Interesting article! For me I will only consider selling a rental property if the cost of keeping it exceeds the income I am getting from it. It’s also going to be a good source of passive income after retirement especially if I cannot find a good investment to put the money from its sale.

  31. Insourcelife

    I start thinking about selling my rental condo every time I get an email from my tenant about something going wrong with the place. Latest one was the alleged mold issue. I addressed it with Concrobium and posted a DIY on my site, but things like this are becoming more of an annoyance now that we have a kid. But then I calculate my hourly rate for dealing with condo issues including tax benefits you mentioned and that always makes me feel better. It’s also part of our rainy day/downsizing plan so I won’t be selling it any time soon.

  32. Hi Sam,
    Have you ever considered owning REITs instead of rentals? Whats your take on them?
    Dave M

    1. I have. I’d rather own stocks and physical property. It’s like owning a hybrid with no leverage. I’d rather just got a sports car or an SUV not a Lexus RX350, although the Cayenne is nice.

      1. Dude. Ppl get the hybrids & all-electric vehicles NOT for the investment, etc. It’s about the environment. Hello! You should consider helping by owning a hybrid or an electric vehicle instead!

        1. You do realize if you don’t incinerate your previous car, you are just adding to pollution and traffic if you buy a new ev or hybrid right?

          Check out the energy required to make the battery packs and come back to me.

  33. Elliott Garber

    Thanks for this reasoned assessment, Sam. I wondered if you were really going to jump the gun in selling one of your properties after that last post.

    I own one condo in D.C. now and am looking for another one to purchase in the next couple of months. My wife and I have already had a some frustrations in a few years of landlording, but we’re confident that it is worth the minor annoyances. We’ve been living overseas (Egypt and Italy) for the last 3.5 years, so that has made everything a little more difficult in terms of managing the rental.

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