The best investors understand they won’t suddenly know if it’s time to sell. They decide if the time is right. Selling and moving up is how they build legacy wealth.
Why Sell?
There are many triggers for an investor to sell an apartment building. Let’s begin with the financial reasons: dollars and cents and prolonging your capital’s growth spurt.
My wisest clients regularly review their holdings to ensure their capital is working, not loafing. Many people have a decision rule, even if they don’t call it that. An example is the decision rule that “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.
There are also non-financial reasons to sell. Sometimes a landlord just gets tired of recurring problems. It’s possible that the tenant in Unit 7 just wore you out. Or, perhaps the plumbing problem that you thought you had fixed came back for the third time. When you’ve just had it with such issues, it may be time to unload the building you own.
There are lifecycle reasons, too. Often, older investors who became financially independent by investing in apartments, transition to other investment options. Cash flow, limited management, and security of high-credit tenants become more important than more appreciation.
But Apartments are So Expensive!
Common investment advice is, “buy low and sell high.” San Diego apartment building prices are the highest they’ve ever been. Many investors think, “If I sell high, I’m going to pay a bucketload of taxes or have to “pay too much’ for the new asset “ So, they shrink back from selling their existing property.
Some other investors consider the current high prices and rate them as “too high.” They decide to remain on the sidelines until they stumble upon a bargain.
Richer investors think differently. They recognize that inflation and leverage magnify wealth building. They don’t consider only the current price of an asset. If you think inflation is going to happen, more property is better than less property. Wise investors consider the trajectory of prices over time.
San Diego Apartment Prices
Prices have moved steadily upward for the last thirty years in San Diego. For most San Diego buildings each succeeding buyer paid the highest price ever for that asset. We’ve had three recessions and three recoveries. Every peak was higher than the last peak and every trough was higher than the last trough.
When you review the history of prices, it makes sense to sell and trade up, even if today’s price is the highest ever.
Is now the time you decide to sell?
This post was adapted from my book, Building Legacy Wealth.
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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.”