CashCow - 4-plex. Do I Sell?
I have a couple of 4-plexes that I rehabbed in Mesa, AZ. I am cashflowing over $800 a month when they are occupied. However, the 4-plex market here is going nuts and I could sell these properties really fast for a good return. Should I take advantage of the market or hold these? I am reluctant to use property managers on these. They have required a lot of hands on and that is why I am not sure if I should sell. It's a tough call. Anyone have suggestions or inspiration? :-?
Well I don't really have any advice but maybe I can help you ask the question.
So you're netting about $10,000 per year. Is that each or combined?
About how many hours a year are involved in management? (you say they require a lot of hands on.)
How much would you net if you sold and took a lump sum?
If you stay in and compare the $10,000 to the lump sum what is your rate of return? If you subtract your time at say $25 or $50 per hour what is your rate of return?
In essence the question becomes, If you took the money and the time you spend here and invest it someplace else would you end up being richer or poorer?
What about selling (1031 exchange) and taking your profit and rolling into another property, something other than a 4flat? How about something hands-off?
Yeah, I think that's the key. If you sell, are you going to be able to replace the income you're receiving now?
Also, the other thing is, are you just tired of dealing with all the hands on? Sometimes having the income's just not worth the headaches, which is a personal choice.
If I sell I could make about 30-40K if I did a 1031. Otherwise I would net that price - taxes. I have just had a horrible time keeping and getting tenants in these building because of #1location and #2 the competitiveness of the rental market in this area. All the slumlords are offering 2 months free rent and lower rents. I have quality apartments but not a quality tenant pool.
i would 1031 into a single apt complex with a larger number of units with onsite management. then, you can just manage one management company/team, you would likely get better cash flow, and vacancies would not be as high a % than in 4-plexes. depending on how much you might want to work on it early on, you could really leverage by purchasing a complex that needs to be "turned around" (i.e., lots of deferred maintenance, below market rents, high vacancy, etc.). then, you can really have some control over increasing the value of the property, as the value of commercial (5 or more units) property is tied primarily to the income that it can generate.
good luck!
This is a difficult decision that no one can make for you. From the language you use, it sounds like you're a bit frustrated and have possibly developed an emotional attachment to this property. In my opinion, if you can replace the cashflow with a less hands on property, this would be the better approach for you. Just as an idea, maybe you should consider a small multi-unit commercial property. Commerical tenants tend to be more concerned with location than with 2 months free rent. The other option is to do what AllCash4Homes suggested. Go for a larger apartment complex with live-in management. But if neither option appeals to you, and you don't want to consider sticking with the current property, taking the cash and just doing something else might be the only way out. Good luck.
Thanks for the advice everyone. I think I am going to sell one unit and work on better managing the other. A lot of the headaches came from the tenants I inherited from the purchase of the property. With most of them gone I can now focus on getting more reliable stable tenants. I also should be able to sell the other rather quickly because of the good market and the high cap rate on the property.
Freedom, I have used Section 8 a few times and it's a good program for your situation. I have had people calling me about renting to them from Section 8. If the tenants move and the apartments are nice, they will stay rented.
Giving the tenants little perks might help too. There is a reason for high turn-overs, a little savings on rent usually isn't one of them if the people enjoy where they are living. Good luck.