How Long Should You Hold Onto An Investment Property?

Posted by Shawn Clayton on Tuesday, April 22nd, 2014 at 4:30pm.

Know When To Sell Your Investment

when to sell an invesment home

Homes in the Bay Head and Mantoloking areas, along with many shore communities in Ocean and Monmouth Counties, are priced to sell and, behind the scenes, investors have been buying homes in the area for less than their previous value. Most investors already have homes of their own, and generally hold onto their investment home until they think it's a good time to sell and make the most money.

However, sometimes an investor who maybe wanted to quickly flip a home doesn't do so right away because the return would be too low. So he or she is forced to wait until home prices rise and during that time, they rent out the home.

Because of this, there are many property owners who are now wondering if this is a good time to sell that home, given the market is starting to heat up a little bit. There are no easy answers to this question, but there are a few factors to keep in mind:

  • One of the things to keep in mind is whether the property is cash positive, cash negative or basically running even. The answer to this, though, is not all you need to know.
  • Consider whether the area is appreciating, declining or basically staying firm. And take into consideration any future development plans for the area by the city or town.
  • What about how much capital is tied into the home and whether or not that cash is better of helping somewhere else. Maybe the capital is best left in the home.

Take the answers to those questions, and compare them with the types listed below and make up your mind about the best choice.

  • The worst scenarios is known as the shipwreck property which eats money, is relentlessly cash negative, and has no hope of making it to a safe port any time in the future. The only viable option is to cut the cord, abandon ship and save whatever you can.
  • Along similar lines, we have the castaway scenario, which is somewhat similar to the shipwreck, but involves a property where there is no immediate danger of ruin and some likelihood of eventual rescue, but patience is required. It might be a bit on the cash-negative side and maybe even a little underwater, yet there are reasons to believe the market will improve enough, allowing you to eventually get rescued with some cash in your wallet.
  • The long-haul property is one that is making a little bit of money and has a chance to appreciate in value in keeping with general market conditions. You could get out now and not get burned, but you will do better in the long run by holding onto the property.
  • The home run is the home or property everybody cherishes. It's the home in a nice, rapidly recovering neighborhood, is definitely cash positive, and can be cashed in at any time or held forever.

So you can see properties break down into two distinct categories. There are the ones which are permanent dogs, and the only choice is between taking a beating now or hoping to recoup some of the losses by being patient. The other group are either plow horses or thoroughbreds. These will make money no matter how handle it. Much can depend on what else you have cooking at the moment. If you have no other irons in the fire, hang on. If you can make more money by cashing out now, then do it.

Shawn Clayton, Owner/Broker, REALTORĀ®

Jersey Shores Luxury Home Expert
732-295-2222

Contact Shawn

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