“How do I know when it’s time to sell?”
That’s a common question when I speak at a group of landlords or investors. The short answer is: “You can’t.” There’s no magic formula. You’ll never have perfect knowledge. You can never “know.” You must decide. Sometimes, the decision almost makes itself.
Some Common Reasons to Sell
Sometimes a landlord gets tired of recurring problems. Dealing with a troublesome tenant might wear you out. Or, perhaps the plumbing problem that you thought you fixed came back for the third time. When you’ve had it with issues like these, it may be time to unload the building you own.
Your life may change. You may have medical problems or family issues that push you toward a less active form of investing. You may reach a stage of life where you prefer a steady flow of checks, with no landlording challenges.
Building Legacy Wealth is Not “Buy and Hold.”
There’s a process for building legacy wealth. Buy a property with the right things wrong with it. Improve the property. Sell at a profit. Repeat the process. Keep your capital’s growth spurt going.
Pick up the pace if you want to build legacy wealth faster. The more often you can buy, improve, and sell at a profit, the faster your wealth will grow.
How to Decide When It’s Time to Sell
My wisest clients regularly review their holdings to ensure their capital is working, not loafing. Some savvy people review their holding every five years, maybe on every fifth birth year, of every fifth anniversary of every fifth calendar year.
Many people have a decision rule, even if they don’t call it that. Usually it’s something like “When I’ve doubled my equity, I’m going to trade up.”
I might nudge clients when their equity is coasting instead of working. Another broker might bring an offer that prompts them to act.
Overcoming Human Nature
In some ways, selling a perfectly good property is an unnatural act. Many people drift. They don’t want to change things unless there’s a problem. Selling your property and purchasing another one creates anxiety. You may worry about whether you will make a profitable move or the worst deal of the century. Some worry about nasty problems that could be lurking in that next property.
Research shows that people are reluctant to part with anything they have, from a coffee cup to an apartment building. Psychologists call it the “Endowment Effect.” The antidote to the Endowment Effect is a clear-eyed review of your financial position, your goals, and the market.
Since you’re a real estate investor, you’re in the richest 3% of the globe. You may not realize how much of a leader you are. Since you are so remarkable, will you act like a leader and make deliberate choice about when to trade up?
You own the investment. You have a stewardship responsibility. How will you decide when it is time to trade up?
Is your capital working or coasting?
Is it time to sell your property and trade up?
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”