If you are considering selling your rental home, this post shares why I sold my rental home in 2017. Real estate is my favorite asset class to build wealth, and my rental home was a key part of my passive income portfolio.
At the time, I was very conflicted because I believe, to build great wealth, we should hold onto our real estate investments forever. However, sometimes life gets in the way. We must make decisions that best suit our needs at the time.
To minimize regret from selling, the key is to utilize the house proceeds for equal or greater returns or comfort. In other words, try your best to reinvest 100% of your house proceeds to earn more passive income and wealth. If you don't, at least spend the proceeds on something that increases the quality of your life.
In 2025, I plan to sell another rental home because I want to simplify life. So this article is up to date for the ages.
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The Dilemma To Sell My Rental Home Or Not
Here are my thoughts from 2017 on why I sold my rental home. I'll then provide an update about my decision at the end.
After hearing direct feedback from about 80 of you through social media, my weekly newsletter, various post comments, and a poll with over 1,500 votes, I decided to sell my Marina, San Francisco rental house I bought in early 2005.
I lived in the house from age 28 -37 and had some wonderful memories there. But after three years of being a landlord, it was time to move on.
The decision was incredibly agonizing because I believe it's best to hold onto a property forever. When I finally sold the house, I didn't feel joy, but disappointment.
I sat in the lounge area of a bank branch looking at the largest check I've ever seen in my life and feeling like I had failed my son, myself, and all of you. I'm long-term bullish on San Francisco property, but I felt I had to start living for today by selling the property.
20 years from now my son may how I could have sold the house for so cheap. If he does, I'll point him to this post as I'll have long forgotten all the details by then. Hope you can forgive me dear boy if I don't properly reinvest all the proceeds.
Thankfully, more than seven years later, the revinested proceeds have grown. But at the time, I was filled with uncertainty on my decision.
Why I Decided To Sell My Rental Home
Back when I was 27 (2004), I decided I no longer wanted to live in a two-bedroom condo even though it was perfectly fine. Unfortunately, average single family homes in the northern part of San Francisco cost about $1.8M or more back in 2004.
But one rainy December afternoon, while I was parking to look at a $1.2M three bedroom condo for sale, I stumbled across a handsome single family home that nobody seemed to want.
The listing agent was from out of town. All she had was a messy home and a flimsy one page black and white flier. To contrast, most homes in this price range were pristinely staged and had multi-page colored brochures.
The house had been sitting on the market for two months and she told me if she didn't get an offer by Christmas, she was taking the house off the market and re-listing it in the Spring.
Knowing that selling during the holidays is a sign of desperation, I sat down with her to learn more about the seller's story.
The seller was a newly retired couple that hailed from Texas. They had wanted to relocate to San Francisco, but after a knee operation, the wife decided she didn't want to live in a house with two flights of stairs. As a result, they never moved in and kept renting back the house to the previous sellers. Then I came along.
Stretching To Afford An Upgrade Property
The listing price was a “more reasonable” $1.55M. It truly was since other homes of similar or smaller size sold for $250,000+ more.
Besides not being marketed properly and the incessant winter rain, the main reason why the house wasn't selling was due to its location on a busy street next to one of the busiest streets in all of San Francisco. We had our concerns about the noise too. So we parked outside the house multiple times for 30 minutes each session to see if we could stand the road noise.
The overall market in SF was still strong for properties under $1.5M in 2004. But I discovered that as soon as I crossed the $1.5M threshold, demand fell precipitously.
Opportunity To Pay Under Asking Price In A Hot Real Estate Market
Here was an open market opportunity to buy a single family home below asking, instead of constantly get outbid. I decided that with the installation of double pane windows, the road noise would be bearable. I proceeded to make an offer $25,000 below asking in December 2004 for $1,525,000.
When they accepted, I felt instant dread. Should I have offered $1.45M instead? But deep down, I felt the house could easily be worth $2M within 10 years. Therefore, I went ahead and dumped my life savings into the house. Plus I got a two-month bridge loan from my grandfather for part of the 20% down payment. My year end bonus got paid out every February so I knew I could pay him back quickly.
After purchase, the house continued to appreciate for two and a half years. But the global financial crisis came and knocked its value right back down. The house's value might have even decline to $100,000 less than my purchase price.
With a $1.2M mortgage, I wasn't feeling that good about my financial future anymore. Instead, I was feeling incredibly stressed!
A Recovery In Real Estate And Another Chance
After almost losing my shirt during the financial crisis, the market finally stabilized. Miraculously, after more than seven lay off rounds, I still had my job.
I remember telling myself that if the housing market ever rebounded where I could eek out a profit, I would sell and never take on such massive debt again.
So in 2012 right when Facebook went public, I decided to list the house. I thought surely someone would be interested in buying a 3 bedroom, 2.5 bathroom home with an unwarranted room and bathroom on the ground floor.
The listing time also coincided with me leaving Corporate America and losing a healthy six-figure salary. The mortgage was still about $1,000,000 and I worried whether I had made the right move to leave a job so young. During a time of transition, having more liquidity seemed prudent.
After one month of no buyer interest, I decided to do something cheeky and raise the asking price from $1,695,000 to $1,780,000 and then to $1,789,000 (see picture).
My ego was bruised and I wanted to show strength. But after another 28 days with no interest, I decided to remove the listing. Destiny wasn't cooperating with my plans to sell, so I didn't force the issue. Instead, I refinanced my mortgage to save ~$400+/month and focused on traveling around the world and growing Financial Samurai.
The Transition To A New Property
In 2014, we bought a fixer on the western side of SF because we wanted to experience a new adventure in a different part of town. The neighborhood is Golden Gate Heights.
We were *this* close to relocating to Honolulu, but decided if we could bring Honolulu to San Francisco in the form of a house with ocean views and a large lanai, we'd stay for several more years.
Instead of trying to sell the Marina house again, this time we decided to rent it out. To our surprise, we found tenants willing to pay $8,500 a month in rent, so we accepted. The four guys and a dog ended up being a PITA to manage, but $8,500 was way higher than we thought we'd get so the aggravation seemed worth it.
Constant Turnover Of Tenants
This initial set of tenants only stayed for one year. My next set of tenants were five guys who were willing to pay $8,800. They were the best candidates I could find at the time, largely because families with small children were worried about being so close to a busy street. Either that, or they simply bought.
I accepted a $17,000 rental deposit and prayed everything would be OK. For the most part, everything was OK. But there was constant roommate turnover, late rent payments, and maintenance issues (leaky roof, broken kitchen faucet, broken fridge, holes in walls, cracked tiles, damaged kitchen doors, noise complaints, and lawn neglect) that finally made me cry uncle.
Related: Being A Landlord Tests My Faith In Humanity
So Many Things On My Plate
In addition to dealing with all these issues, I was also busy project-managing my new home remodel. Remodeling an entire home is already stressful. Add on rowdy tenants and life begins to become unbearable, even if you don't have a job to go to.
Thank goodness we have been able to resolve these stresses and focus on the birth and care of our new son. As prospective parents, we didn't know what to expect, but we did know from lots of feedback that raising a baby is way harder than what people say (so true). We wanted to free up as much time as possible to prepare for this new chapter in our lives.
Renting out the Marina house for three years wasn't a great experience, but at least I gave it a go. The ~$60,000 in net rental income enabled me to finally achieve my long term passive income target of $200,000 a year. But like Anthony Scaramucci, who was fired just 10 days after being named White House communications director, my $200,000 a year in passive income didn't last very long.
Hard To Let Go Of The Property
I held onto the Marina house in 2014 because it was tough to let something go after so many good memories. I also didn't want to be embarrassed again. Besides, I was bullish on SF real estate. Financially, I had a $400,000, 7-year CD come due that provided for the downpayment of my new home. Further, my online business continued to grow.
But after vacating it for almost three years, I no longer had a strong attachment to the Marina house because by then we had made amazing new memories in our new house in Golden Gate Heights.
When you remodel every inch of the house, you naturally get more attached to it. I also remember the first night we brought our son home at midnight. It was a magical moment that solidified my current home as the forever home.
San Francisco Property Prices Rise
From a financial point of view, we got very lucky. Because nobody wanted to buy our house in 2012 we've been able to double benefit with leverage from a ~20% appreciation in the Marina rental house and a ~35% appreciation in my primary residence.
It's funny to see how quickly sentiment can change. Most people generally have to sell to buy another house in SF, but I took some risks and leveraged to the hilt.
For some time, as the bull market kept on going, I felt stymied by an earlier decision to lock up $300,000+ in a 4.1% yielding 7-year CD . But as it turned out, it was the expiration of the CD and the availability of that money that enabled me to buy my new home.
Further, I had thought there would be a two or three year slowdown in property prices starting in early 4Q2015 when many private companies had their valuations slashed. While the market did slow down for a couple quarters, by the Spring of 2017 it had recovered and was as hot as ever for single family homes. The condo market, on the other hand, is definitely cooling due to a surge in new supply.
The Itch To Sell My Property Increased
By early 2017, after the 8th time my tenants were late paying rent, I started thinking maybe I could get $2.3M or $2.4M for the house (from $1.7M in 2012). And if I could, I would sell.
I was texting back and forth with my neighbor to give him the first look. He said he'd be interested in buying my home via a private transaction for $2.1M.
I passed, even though it would have been nice to save on all those fees. I remember feeling vindicated that finally, my home was worth what I thought it could be worth all these years later.
Then, unexpectedly my tenants gave me an opportunity to test the market by informing me of their intention to vacate on May 8, 2017. I set up a race like I did in 2016 when my condo tenants vacated.
An Opportunity To Sell By
In one lane was me in charge of finding suitable tenants within 30 days. In the other lane was a realtor in charge of finding a buyer off market within the same time period for $2,500,000. I decided on $2,500,000 as a stretch price because I was reluctant to sell. Whoever found the client first would win!
Unlike in 2016 with my Pac Heights rental condo, I lost. I couldn't find my ideal tenant, someone who would take care of my property and stay for at least a couple years. One divorced mother of four children offered $7,500, but I passed because she was a highly unprofitable startup founder.
Another family of 6 offered $7,800 and I passed due to too much wear and tear and such a weak offer. This was the beginning of my tenant hunt when I though the rental market was stronger than it was. It is much harder to find a $9,000/month renter versus a $4,200/month renter.
Meanwhile my realtor was able to identify a buyer who had lost in a bidding war for a comparable property in my neighborhood.
One thing led to another and I received an offer for $2,600,000 just nine days later! It's worth noting that I had already been looking for tenants for 30 days already before the race began given I received a 30-day move out notification.
Analyzing The Strong Offer
I was astounded by the $2,600,000 offer. Another highly experienced realtor had told me that if I put in $50,000 worth of work painting the house, updating the light fixtures, changing the master bathroom tub, and replacing the kitchen floor I *might* be able to get $2,500,000 or so. She was a top producer with 30 years of experience and visited my house twice to come up with her assessment.
Another realtor I interviewed said that if I put $30,000 into staging, painting and modernizing the light fixtures, I'd probably get around $2,300,000. I was not impressed. But I understand it's important to manage expectations and surprise on the upside.
Deciding On A Realtor Was Tough
I went with my realtor because in 2016 she had sold a neighboring home in Golden Gate Heights for a massive premium. I was impressed with her professionalism when I corresponded with her and most importantly, with her results. The aforementioned house was a dump, had to go through probate, yet finally sold for $150,000 more than I thought (10% over).
My realtor firmly believed I could get $2,500,000 without having to do any further work since I had already painted a couple rooms and refinished the floors. My house is 2,070 sqft plus about 200 sqft of unwarranted space.
If you slap on the average price/sqft of $1,171 in the Marina, you get $2,423,970. But my house should trade at a 10% – 20% discount due to its location on a busy street.
Still Wanted More Money
Even with a surprising offer of $2,600,00, because of commissions, I wasn't completely convinced I should sell. I was able to negotiate the total selling commission down to 4.5% from 6%, but that was it. In this day and age of the internet, a 4.5% commission is still egregious.
That said, the previous realtor who I used in 2012 for a 5.5% fee hadn't found me a buyer for $1.7M after 28 days. So at least my latest realtor had something for me to consider.
In November 2023, a Missouri jury found the National Association of Realtors, Keller Williams, and HomeServices of America guilty of collusion to keep commissions high. Therefore, hopefully commission rates will come down over the next several years.
The Counter Offer
We had several other realtors come with their buyers, but nobody made us an offer. The road noise and traffic were always the main deterrents. For some reason, these buyers didn't mind the noise and were charmed by the aesthetics of the home.
Given I didn't need to sell, I decided to counter at $2,788,000. A higher price would cover my commissions, transfer tax and then some. Why not try and test the upper limits without losing the buyer? The cost to sell a home is expensive!
After several days of hemming and hawing, they came up to $2,700,000. They said this was the best they could do because their purchase depended on bank underwriting.
I was tempted to accept because now I was $200,000 – $300,000 higher than what I hoped to get. But, my realtor kept encouraging me to reconsider the price because she knew I was on the fence.
Countered Right Back
I countered $2,750,000 firm with a lovely letter. In the letter, I discussed how much they would enjoy living in a single-family home instead of in a condo. I wrote about all the upgrades we had done over the past 13 years to make the home perfect.
I gave them an Excel spreadsheet of all the things we did. The spreedsheet included the cost of each item to make them feel like they were getting a good deal. I also showed them pictures of all our work.
After another several days past my acceptance deadline, they acquiesced! $2,750,000 is a significant number because it is a full $1,050,000 more than what I would have sold it for just five years earlier. Being able to earn $210,000 a year in equity while also collecting $100,000+ a year in gross rental income the last three years blew my mind.
It felt like I may have won the lottery!
I write “may have” because the buyer wasn't the commonly cited cash buyer all sellers hope for. Instead, the buyer had to not only take out a $2,000,000 loan, he had to take out another $300,000 loan at a much higher interest rate because he only had about $400K in downpayment.
Three years earlier, he had bought a $1.5 million condo in the same neighborhood before he had a son. Based on his finances, the max the bank would allow him to buy was $2.6M. The sellers admitted they had been hunting for properties in the $2.3M – $2.5M range when they heard about my house.
Things Started Getting Dicey Once In Contract
When the deadline to remove the financing contingency arrived two weeks after accepting my counter, nothing happened. His bank was making him jump through more hoops so he wanted to keep his financing contingency. If he had removed the contingency, and the loan didn't go through, he'd be out $82,500 (3% earnest money downpayment).
With no other rental offers, I decided to extend the deadline several more days. This was after already extending the inspection contingency deadline by four days. But after five days of not getting any sort of update, I began to worry.
Worry turned into frustration, so I decided to aggressively look for more renters again! Each day the deal didn't go through was another day of lost rental income in my mind.
I kept on telling myself that I would regret selling the home 20 years from now due to the robust job engine here in the SF Bay Area. So after a 15 day respite, I marketed my property hard again to find a group of tenants.
After a week, I found a group of five guys (girls don't exist in San Francisco) who ironically all worked at my old employer! It was destiny!
Temptation To Just Hold On
They all made about $80,000 – $95,000 base salary each as first or second year financial analysts. I thought it would be hilarious to write in a future post that even after getting paid for five years after I left thanks to my negotiated severance, I would still get paid by my old employer for at least another year! It would feel absolutely fantastic, so I decided to go with them.
There was only one problem. Instead of offering the $9,000/month that I wanted, they offered $8,300. I countered with $8,500 and told them they could start one month later on July 1, instead of on June 1. They were originally asking to move in on July 16. But I felt that leaving my property empty for that long while also having an outstanding offer to buy was too much.
They finally agreed on the terms. However, they bailed the Saturday morning we planned to meet up! They told me they found another property and thanked me for my time.
In other words, the true market rental price for my house was not $8,500, but closer to $8,000 a month or maybe even less given two other parties offered $7,500 and $7,800, respectively.
What's interesting is that a Missouri jury found the National Association of Realtors, Keller Williams, and HomeServices of America GUILTY of real estate collusion to keep commissions high. Let's see if I can get some renumeration after the fac!
Major Uncertainty While In Contract
Now it was time to panic again because I had sent a document to my buyer to reject the offer and release him of his $82,500 earnest money deposit. Now I had NOTHING.
Using my Buy Utility, Rent Luxury framework, someone was offering me 28.5X – 30X my gross annual rent compared to the 20.5X average for the SF Bay Area and I rejected him. What was I thinking?!
But thankfully, the buyer didn't know everything that was going on, on my end. After I sent the recision document, they told me they were working as hard as they could with the bank to get the loan finalized. They still really wanted to buy my house. They said that by Monday or Tuesday, they should be able to remove the contingency and for me to please wait several more days.
Just Kept Waiting For The Financing Contingency To Be Removed
Given I had nothing, and nothing could be done during the weekend, I told my realtor to tell the other realtor that I was OK to wait, but no promises. I wanted them to feel a tremendous sense of urgency to get their loan done since they were already a couple weeks past the deadline.
Meanwhile, I was mentally preparing to just keep my house empty for the next 22 years because I was so sick and tired of dealing with renters.
That's right. I was willing to pay $22,000 a year in property tax, $2,000 a year in home insurance, $5,000 a year in random maintenance costs totaling over $600,000 after 22 years just to hold onto this asset nobody seemed to want to buy or rent. My pride was speaking again.
I even hired a leasing agent to tap into his relocation specialists network for a one month rent fee to see if any ideal tenants could be found. Nada, except for a group of six guys! No thanks. All signs pointed towards the deal not happening.
Nail-biter Until The Very End
I was stressed, annoyed, and anxious during this 45 day process. Remember, I was getting very little sleep taking care of a newborn. He would wake up every 30 minutes to 2 hours. I was running on adrenaline. Then I was running on fumes. Then the fumes ran out so I decided to settle on leaving the house empty forever.
When the buyers were finally ready to remove the financing contingency, I had to make a decision to tell them to go ahead with writing a new offer or telling them I had moved on.
By this time, I was too tired to negotiate any longer. They were also holding me to about $35,000 in immediate weather-proofing work that needed to be done. The work was pointed out by the inspector who found leaky windows and dry rot. Inspection contingencies are another tactic for buyers to reduce the price.
I had disclosed to them one of the light wells leaked through the dining room during the recent winter storms. They were rightfully concerned, and so was I since all I did was get up on the roof and spray the crap out of the roof with FlexSeal.
The seller's disclosure is very important when selling a house. You must be as honest and thorough as possible to build trust and avoid future backlash.
The Final Sales Price Of The Home
In the very end, we agreed to a price of $2,740,000. I gave them a $10,000 discount to address the inspection report. Then they agreed to finally remove the financing contingency and get on with it. The final price/sqft came out to be $1,323. This was a 13% premium to the average price/sqft in the most expensive part of the town.
I'm happy for the buyers because their loans went through. They've now got a great home to raise their son for the next 10+ years. I just hope his new business venture goes well, he can sell his old condo to free up some liquidity, and the economy continues to chug along.
This piece of real estate served us well. Now we no longer have a use for it because we have a new home and more powerful streams of semi-passive income.
Why I Sold My Rental Home: Desire To Focus On Family
In 20 years, I'll have wished I held onto the rental property. But I just have to remind myself about all the time and stress I will save by not owning. Paying $500,000+ in property taxes alone during this time period didn't sound too appealing either.
The older you get, the more valuable time becomes because you have less of it. Besides, I'm just thankful nobody bought the house for $1,050,000 less in 2012.
Dear son, if you got through this beast of a post, well done. The bottom line for selling is that I wanted to simplify my life so I could spend as much time with you as possible. Two years later, we had your baby sister and we couldn't be happier.
You two are growing up so quick. The time I've spent with you has been priceless.
Reinvested The Home Sale Proceeds
For all of you wondering what I did with the proceeds, I reinvested $500,000 into real estate crowdfunding. I did so to diversify my real estate holdings, maintain real estate exposure, and earn real estate income more passively. I also invested $500,000 in stocks and $500,000 in AA-rated municipal bonds.
I've gone from having $2,740,000 of exposure in one extremely expensive property to owning a $800,000 portfolio of 17 properties around the country. These properties generate higher yields and are cheaper. Here's a reflection of investing in private real estate funds for seven years. I'm glad I reinvested the proceeds because home prices, like the stock market, have continued to go up.
Favorite Real Estate Crowdfunding Platforms
If you're looking to buy property as an investment or reinvest your house sale proceeds, take a look at Fundrise. Fundrise is one of the largest real estate crowdfunding platforms today with over $3.2 billion in assets. With diversified funds, Fundrise enables investors to gain commercial real estate access in a less volatile way.
If you are an accredited investor looking to invest in individual real estate opportunities, check out CrowdStreet. CrowdStreet focuses on real estate investments in 18-hour cities, those cities that are less expensive with higher rental yields. If you have plenty of capital, you can build your own select real estate fund with CrowdStreet.
Earning Income Passively
It's been over seven years since I reinvested my home sale proceeds into real estate crowdfunding, stocks, and municipal bonds. So far, it's been great, despite the pandemic. It feels wonderful to earn income 100% passively. To have diversified exposure has reduced volatility, which enables me to sleep better at night as a dad and retiree.
If you can reinvest the proceeds after selling your rental home, you will minimize the regret of selling. The key is to find risk-appropriate investments that will hopefully continue to provide you income and a return.
Good luck with your home selling decision! Building passive income is the holy grail of personal finance. With interest rates at rock-bottom levels, the value of income-producing assets have gone way up. This include rental properties, dividend-paying stocks, and online businesses.
Deliberating On Selling Another Rental Home In 2025
We ended up buying another “forever home” in October 2023 because it had both views and a large lot. Therefore, we ended up renting out our old home for a year. However, with now four rental properties in San Francisco, we feel it's too much and want to sell our most expensive one. We'll then reinvest the proceeds in stocks, bonds, and venture capital.
San Francisco property, especially west side San Francisco property, is booming due to big tech gains and artificial intelligence. This is where my rental property is. So I've decided to take advantage and sell into strength, instead of sell into weakness.
All the best in your decision to sell your rental property. The key is to reinvest the proceeds to minimize financial regret!
Sam
I just finished reading this entire page—the whole post and all the comments. A couple paragraphs into reading the post aloud to my partner, I started to cry. My mom recently died, so he’s used to these out of the blue tears, but when he asked why I was crying, I told him it was because I was suddenly overcome by how incredibly helpful your blog has been to me over the last weeks and months, Sam. I told him I was going to write you a letter thanking you for creating this site and for sharing so much information.
I am unlike you or the majority of your readers. I am not a finance wizard. I am not a real estate investor, well, not in the ways you all are. I was born into poverty, the only child of a single mom with severe mental health issues. I didn’t go to college, in fact, due to family issues, I didn’t even complete high school. My mom never owned a home, we were long-term tenants in a Los Angeles apartment where my mom was forever terrified to ask anything of the landlord lest she respond with a rent increase she could nary afford. Consequently, we lived with broken things and never had anyone over. I had every reason to believe I would always be a tenant for the rest of my life.
But, in 2013, I sent an email to my landlord that changed the course of my life forever. After an incredible roller coaster of a seriously nail-biting ride—while both my partner and I were unemployed and without savings—we purchased the SF duplex we’d been tenants in since 1995—for 60% of its market value, despite a previously generous and benevolent seller who had chosen to become adversarial half way through the process. Talk about feeling as though you’ve won the lottery! There has never since been a realtor, a lender, a friend, or a stranger that has not listened to our story with their eyes wide and their jaw agape, chin on the floor. We know, we’ve heard it countless times “That’s a true blue moon story and blue moon stories don’t happen in San Francisco!” Seriously, we pinch ourselves everyday.
Six years later, our duplex has taken us down so many planned paths that were ultimately thwarted by circumstances, by familial health issues, by deaths, by jobs gained and lost, and the lesson we’ve learned from it all is to just hold on and pivot, pivot, pivot and persevere without letting ourselves be undone by the shift we didn’t want. We’ve become far more flexible and resilient people and I appreciate the encouragement this situation has provided to grow in those ways.
We’ve now got two condos instead of one duplex thanks to SF’s condo conversion scheme for 2-unit buildings. We’ve struggled with whether to sell both, rent both, or sell one and rent the other. Every time I’ve taken to the internet to research some aspect of our circumstance, google offers up a Financial Samurai blog post seemingly written just for me in that moment. I feel so honored, lol. :)
We paid $600k in 2013. We currently have $1M in debt on our two Inner Richmond condos that at a $1k/sq ft valuation should be worth $2.88M. We’ve finally—just last night—decided to sell our upper unit, take our $500k tax-free gain and pay down some of the existing debt with the additional proceeds. We’ll still have a mortgage (unfortunately, an alt-doc at 5.99% due to loss of employment at the start of the attempted refi that would have allowed us to keep both condos) on the rental, which is the more valuable of the two condos as it is the lower and will have deeded yard and garage use—so we can build an ADU if we choose. And then we’ll take our $500k gains and move to Honolulu (hey! that’s our dream too!).
We’re going to rent there for two years and see how renting out our SF prop goes. Two years will give us time to see how we feel about being first-time and long-distance landlords. It’ll give us time to see what happens with both housing and rental prices here as well as whether or not this inverted yield curve is going to affect us and our future decisions. We may add that ADU or we may, after seeing how we like/don’t landlording, sell the additional condo.
Sam, I have to take this minute to pointedly thank you for what you have provided here. I did not and do not have education or expertise to assist with the analysis I have been working hard to do around our situation. Ours was a situation that never should have happened, but I read and researched and nearly busted my brain making it happen back in 2013 and I’m proud of what I’ve accomplished for my family. More than anything, I will always feel such pride and gratitude for the fact that I was able to take my mom into my extra unit when she was being harassed by her SF landlord to move from her rent-controlled apartment because he wanted to sell without protected tenants. It got so bad I was worried for her physical safety. Shortly after we moved her into the unit we’d just rehabbed to rent out for income, my mom was diagnosed with an incurable disease—the same one her sister had just died from two years earlier.
We tried several times after that to move with my mom to Oahu before she passed, but it kept not working out. Like you with your 2012 sale not happening, it was a very good thing our purchase fell through. Shortly after we tried to buy a triplex there for $1.675M, I was diagnosed with 3 incurable auto-immune diseases in the same organ that my aunt and mom had a similar but different disease in. Talk about having your priorities illuminated! I’m so honored to have been able to give my mom the home and security and warmth and loving care she received from us the last 3 years. We did not know they would be the last 3 years of her life. I think it will prove to have been the proudest feat of my entire life.
But, somewhere along the way, I got scared about what I had here and what I might be setting myself up to lose if I sold one or both units. I started making myself sick with worry over making the wrong choice and I forgot completely the promises I’d myself when my good friend died suddenly and unexpectedly, and then again, when my aunt died from super advanced cancer no one knew she had. That promise? Of course, it’s the same one we all make to ourselves after someone close dies…to live for now, to enjoy every moment, because none are guaranteed. But we so often forget the promise before we make good on it, because stupid life and the daily grind push it out of our minds, until the next person dies. But while I was reminded of that promise once again when I received my own diagnoses, somehow the promise of SF real estate and its ability to always appreciate kept throwing me off that “live for now!” track and kept making me think I needed to work myself into a (seriously stressed out) pretzel to hang onto both units lest I someday hate myself for having been so stupid as to have sold an SF property.
Last night though, I saw the title of this post, I saw that “live for now!” encouragement and suddenly everything shifted and clear perspective came into view once again. I remembered what the point of all this was and I remembered I’d worked so hard at getting to this point because everyone/I might die and I want to go snorkel in Oahu every day before that happens.
My partner and I are preparing to celebrate our 20-year anniversary in September. I told him we are retiring for our anniversary gift. I told him we don’t even need to go to a fancy dinner, that I will be perfectly happy just packing for Hawaii on our anniversary. Sam, I feel liberated. I feel actually happy about all of this for the first time in a very long time. I know some of your readers that chastised you above for selling will be disappointed with me as well, but your post made me remember that if I’m not happy, if I’m not cutting down on stress that is both a trigger for and very negative factor in auto-immunity, I’m not doing anything good for myself or my partner at all. We have no kids to worry about passing a legacy to. My mom only retired a few months before her death so her retirement funds were barely touched. I’m lucky to have inherited her IRA which I can move into a self directed IRA to invest with. She made me a video before she passed and she was emphatic about going and having the happy life I’ve been trying to make for a long long time—she was emphatic that we hurry up and get to Hawaii. So, I finally found the clarity I’d been lacking about what is right for me—and only me. You sold in favor of time with your son. I’m selling in favor of (healthy) time with my love of 20 years and really truly enjoying what we’ve not been able to have until now, because we know it might go away any moment. So, thank you, thank you, thank you, Sam, for putting all these many wise and insightful words up here on your blog, for me to find and discover true gold in. You have so positively impacted my life, not just my finances, and for that there will never be enough thanks.
Sam, I know you are focusing on severance negotiation consultations pretty much exclusively now, but we would so love to have you help us figure out next best steps because we know there’s more to do to ensure a secure future for ourselves, but we’re not sure what. But at almost 50 and 54, and after all the last 6 years have put us through, we’re super ready for our “early retirement” and beyond ready to experience both the health benefits and the bump in quality of life that this lottery-esque, blue moon, SF real estate story has made possible.
Thanks again, Sam, to you and all of your readers who share here. I’ve been given so much to think about, so much to research, so much to motivate me, and so much good stuff to help me move forward with confidence at a really critical time in my and my partner’s life. Again, the impact cannot be overstated, you didn’t have to share so much of yourself with us, but you chose to, and I want you to know the fact you did means you are helping people in significant ways beyond just the financial bottom line. You should feel really good about that and proud. To help others is such a tremendous service and you are a gift.
Hi Dana’s Daughter,
I’m honored you left such a detailed comment about what is going on in your life and sharing it with me in the community. I’m also glad you guys have come along way and have benefited from so many things over the past six years.
It’s amazing how time flies and serendipity comes when you least expect it right?
Sam
I was in the same boat as you. I was tired of dealing with tenants and wanted to sell. But at the end, I just hired someone to manage it for me instead so I didn’t have to deal with it. My management guy told me to buy a home warranty so I didn’t have to worry much problems with the house. I am glad I didn’t sell because the houses in SF are skyrocketing. SF properties will keep going up in the future years. It’s just too bad, there are so many homeless though.
Thank you for sharing such a riveting story. I live in Marina Del Rey and just recently made a jump into the investment property game. I purchase a duplex in Venice/Mar Vista, which is adjacent to where I currently live. I have to say reading your post brought up some of the same feelings I had when I went through renovating one of the units as well as going through the process of finding tenants. My wife and I decided to forgo using a property management company and decided to take a crack at landlording ourselves. So far, so good. But you’re right in your assessment about managing properties. It’s a lot of work and you find yourself losing out on living in the moment. Don’t get me wrong. There’s something to be said about working hard and trying to secure a stable and comfortable financial life because who wouldn’t want that. However, at some point, it can’t always be about the hustle, right? There’s got to be some sort of balance with this process and it’s real easy to get lost in this and constantly find something new to worry about.
We just recently closed on a $1.5 million duplex in which we’re renting out both units. Thankfully, we’re operating in a positive cash flow situation (~$1,000/month). It’s not much, but with the way things have been heating up in Silicon Beach, it’s probably safe to say that the fundamentals of the local economy are strong and to expect that over time, the price of the area will continue to rise over the long term if the economy here remains vibrant. Much like the Bay Area, my husband and I have been seeing a rapid rise in rental/housing prices. It’s basically impossible to purchase a single family home without help from family or if you’re some sort of investing wizard. We work in healthcare and had to work our butts off to make that down payment and even still, it wasn’t guaranteed. There were 15 offers and one was a cash bid that was $25k above what we were offering. I just want it to be known to your readers who live in the area that letters DO work because that’s what we did.
We’ll see if this gamble (because at the end of the day, isn’t that what all investing really is? A form of gambling in which everyone tries to find an edge to mitigate their exposure to risk) will pay off. The good news is our property is zoned to house a total of 6 units and not under the city’s rent control ordinance, so there’s room for growth on this property. That said, I’ll just cycle back to my original comment to your post that it’s real easy to get lost in project after project in an investment property…and while it may (or may not) pay off in the long term, it does behoove one to think about the costs of doing so. on
Thanks for sharing.
Love this post, Sam! Congrats on the close and it was fun to read the nail biter to the end.
I assure you, you’ll never regret a decision that allows you more time with your son. :)
Hope so! I think that’s the right attitude regarding time. It’s priceless that whatever time I can spend with him is worth it.
I really enjoyed this post and showed it to my SO too. I have been reading your blog for a while and my SO and I both know that you are a solid real estate investor. Hence, this post was a little surprising. However, I know and understand why you went ahead and sold. I wish you all the best for your future endeavors!
This is amazing, Sam!! The numbers are just baffling to me. I am in the middle of the 150-200K family homes here in OK, so your BURL theory is something that I could do fairly well in the future. From a parenting standpoint, if you teach your son your financial ways as a young kid and teen, he will be able to do all of this on his own. If you want to help him later on, there will be plenty of money and opportunities. There is a house/condo on every corner.
It baffles me as well Ashley! It seems kind of absurd people are willing to spend 30 times the annual gross rent to purchase a place. To put it another way, if you buy property at 30 times gross rent today, it will take at least 30 ywads to get back to even. But in reality, it’ll take many more years because of operating costs.
Based on my expenses, it will take 42.5 years. But it’s not bad if the buyer lives in the property and hold it for the long term.
I’m envious of your prices where you live!
It’s fascinating to watch how tough a negotiator you are while also hearing that you considered spiting your face by neither renting nor selling if the offer was not perfect. I think you made the right choice in the end. This property and the way you interacted with it caused you unnecessary stress.
When you don’t care what happens, that’s when you can negotiate the fiercest. It is dangerous though to let ego and emotions get in the way. So the realtor helped be the mediator to keep things rational. It is much more emotional selling a house than buying. As a buyer, you can just walk away with lose nothing. As a seller, if you screw your sale after 45 days, the vulture start circling and question what’s up!
Here’s a snippet of my passive income. I need to update it though for 2018.
I brought my first property (I partnered with a college buddy where we purchased a duplex and condo converted) in the mid 90’s. I was working in high tech then as a marketing director. Then in 1999 I got out of tech (was burned out of the incessant ups and downs) and started my own business in an area I loved- international contemporary art- where I curated and sold art to large corporations to enliven their common work spaces and promote cultural diversity. It was a very cool business, but difficult to build it into something sustainable, as art is of course a luxury. Plus the dot com crash didn’t help ;)
After that I expanded on my interest in real estate, and made 2 great purchases in the mission mid 2000’s. To give an example, I brought a large dumpy SFH for $520k. It had a huge illegal inlaw which I knew I could develop into a legal unit due to the zoning. I spent about $280k legalizing that unit, and renovating the top unit (our home.). Back then it was a sizeable investment to put into a building in the ‘up and coming’ mission. We also later condo converted. Fast forward today, and both units are conservatively worth $2.5 mil. And (this is the kicker) the land is now so valuable that I could “throw away” the $280k I spent, and totally redo plus expand both units, spending several hundred thousand, to have a building worth closer to $4 mil. Although I don’t have the energy to deal with it.
I made my last purchases (duplexes that I can legalize the inlaw and turn to triplexes) in 2014-15 in Bayview. They are already worth a lot more than what I paid, and kick off nice cash flow. Bayview is like the mission 10-15 years ago, and I’m confident that these will multiply in value.
But I don’t have plans to buy more. For several reasons. One I don’t want to manage more property ;) Two I want to invest in developing the inlaw units to bring my last purchases to highest and best use. Three prices are sky high now and I feel we’re in uncharted waters politically and overdue for some kind of financial correction. Four I reached my cashflow target. Why just take risks, add significant work to generate more money that you don’t really need? It’s not as if we live frugally, but I also don’t need a Ferrari. (I’m happy with my mini convertible :)
We’re in our early 50’s, no kids. My wife recently quit her job as a psychologist at a mental health non profit, and we are taking stock of what we want to spend our time on. We’re pretty sure that eventually we’d like to start or contribute to a non profit (where we can make a real difference) and eventually will our RE assets over to. So it’s kind of like leaving a legacy for your children, and it’s nice to be able to use the assets to give back to a world that we benefit from.
So are you making significantly over $20k a month with your business? How do you see growing and securing it for the long term?
One of the reasons I like your blog is that you explore a wide variety of assets and investment approaches. So what’s your take on diversification? I know that it sounds “right” to diverse, but those who are successful know that usually you need to go in deep in an area you excel at, rather than just mediocre at a range of things you don’t intimately know. But once I finish my current developments, I’ll start thinking about putting the extra cashflow we generate every month into a different asset class. I think diversification makes sense after you “make it” with your core business. What’s your take on that?
So if you’re not buying now because you think prices are sky high, then the only difference between you and me is that I decided to just lock in the gains because I didn’t want to spend one additional second managing and maintaining the property.
Good luck with Bayview. I decided to focus my money on the western side of San Francisco instead. Prices are blooming here in the inner Sunset and Golden Gate Heights area as well. Redfin just named Golden Gate Heights the number to hottest neighborhood in that tire country. Go figure.
There is a never ending amount of money to be made, so you’ve got to decide for yourself how much is enough. I decided for properties in the bay area was one too many.
Don’t diversify if you are comfortable with the risk and the time spent on your assets.
As for my online business, it’s been going for over eight years now. Anything made is gravy. To secure the business, I can just continue to write or sell it. I just got an offer last week actually. But given I’m not focused on the money, I’d rather just keep this business for as long as possible.
Hi – just curious about your Bayview holds. Are you still happy with them? I’m currently trying to buy in SF, those homes are in my price range, but I’m so nervous about those neighborhoods.
With Airbnb and DoorDash going public, and a vaccine by summer 2021, San Francisco Bay Area real estate is going to be very hot imo.
Of course investors have different talents, perspectives and priorities. I was just giving you specific examples of what *I* would consider doing with the marina property.
My portfolio GRM is close to 20. But the way I look at it as that I’m getting about a 5% return on my equity from the net rents, plugs averaging another 7-9% on appreciation long term. So that’s a good overall return for owning prime and safe assets. Plus I keep most of my income, as my write offs are phenomenal. Also keep in mind that I live in a pretty nice condo (part of a duplex I own) in the mission (4br, 2ba, parking, deck, yard), and that I paid a fraction of what it’s worth years ago. So I benefit from my real estate personally as my home mortgage is quite low. Given that, and my write offs, my $15k cash flow is probably close to $30k for w-2 earners, as they pay taxes up the ying yang, and probably have a fat mortgage on their home.
And as I tried to explain above, what I also like is the security that it should be reliable for the foreseeable future (cataclysmic events aside.) Personally I never connected to paper investing- stocks, bonds, etc. And I’m not a huge fan of the private business. Even if it’s going awesome now, you can never really coast. If it’s truly a great idea someone else will copy it, and you will need to take major risks to grow it to the next level, so you can be the big player to protect your market share. Or one product/idea is strong, but you need to expand to sustain your growth, and that is risky too. Usually a Business that is viable changes A LOT during 5-10 year, much less 20-30 years. With prime real estate in a highly desireable area, once you’re cash flowing and the property is stabilized, you can pretty much coast, if you’re happy with the return and don’t want to expand.
As you can see I’m quite optimized for real estate. It’s sort of a closed loop system where you optimize all your variables to lock in a tight, secure and well performing portfolio. I’m sure you do that too with your investment vehicles, which you seem well versed in. For real estate it took a long time, hard work and risks to get there. My first purchase was in 1994, and I became an active investor (multiple properties) in 2003. All my RE was purchased by refinancing and leveraging, so it takes a while to build, and of course the Great Recession didn’t help ;)
Not sure what you mean by 10x the RE income. $150k/month? Sounds rich.
Got it. If I were you and 100% leveraged to real estate I would totally be biased for real estate as well. Just be careful thinking that no cataclysmic event can happen to real estate.
If you’ve been investing since the 1990s, then I’m assuming you’re over 45? Definitely a great time to buy back then. Not sure how old your partner is, but if you are to start a family, your real estate portfolio is great for security and your child. And given real estate is your sole income source, you have actually more time than me to manage it. Real estate is a minority portion of my net worth.
Are you buying more real estate now? If so, where and at what multiple? It’s always good to think forward instead of backward. How do we best mobilize our money now?
And yes, if you were making $150,000 a month in another business where you had a lot more fun, you might not be as enamored with your real estate portfolio anymore. Everything is relative in finance.
Related: https://www.financialsamurai.com/net-worth-optimization-exercise-make-sure-time-spent-is-commensurate-with-each-assets-value/
Sounds like your decision to actually sell was rather arbitrary. If those girls wouldn’t have flaked out, you would have rented to them and kept it. Not sure that’s the smartest or most disciplined way to make such a big decision.
As for managing tenants, I think you were a bit greedy expecting such a high rent, given that rents have dipped in the city, especially for such expensive properties. Plus, it’s NOT WORTH a month (much less 2+ months) of vacancy to get the top rent. Experienced landlords know to list the property at a bit lower than max rental value for 2 primary reasons: 1- you get more prospects to choose from (and can select a lower maintenance tenant profile) and 2- you don’t loose the vacancy time which reduces your actual rental income.
Not trying to be harsh, but those are my observations. Personally I don’t think managing a home in a high end neighborhood is that much work (as long as you avoid the douchey frat boy crowd the Marina is known for). As long as you had fixed long term financing, I’d have kept it (along with the other condo) as stabilized blue chip investments. What happens if you blog’s revenue stream wanes in the future? How secure is that for the long term, given you can’t control the competition, or if more compelling products appear? Prime RE is almost always safe. My 2c.
I think you’re right that I’ve been arbitrary and greedy. Selling for 30X annual gross rent is an arbitrary number. Why not 35X or 40X right? The SF Bay Area average multiple is 20.5X, so I arbitrarily decided that 30X was a good enough premium to sell. But in the future, or compared to Hong Kong or London, it’s cheap.
What is the value of your rental properties and at what price would you sell for? I know you’ve said you rely on them to live, so perhaps you will never sell. I don’t rely on my rental properties to live. I never have after all these years. 100% of the money gets reinvested. My thought is to turn $60,000 in semi-passive income after expenses into $100,000 – $150,000 using my BURL strategy.
As for greed, I am DEFINITELY greedy of my time. I can’t get time back and I want to spend as much time with my newborn. Do you have a family or little kids to take care of? If so, I’d love to know your routine.
Everybody has their limits. My limit was owning three SF Bay Area properties. I tried owning 4 for three years and had enough. My other property in Honolulu doesn’t count. Are you buying more now? If so, where and at what annual gross rent multiple? How much do you determine is enough and what is your current rent roll?
Finally, I’m definitely a risk taker as you are implying with asking what happens if my blog revenue goes down. After all, I did leave a high paying job at age 34 to just blog. But I find it thrilling to venture into the unknown. It’s truly been a fun adventure. See: Entrepreneurship Is Like Early Retirement: Awesome!
Any forward looking guidance is appreciated as I’ve got much to learn. Dwelling on the past is nice, but not too helpful. Thanks for sharing your thoughts!
Yes my primary income is from the real estate, so my plan is not to ever sell. When we get old we will probably set up a non profit and donate our holding to it, so they get it at a stepped up basis. We don’t have kids, but even managing the 13 units we have (3 condos, 3 triplexes, 1 office) isn’t close to a full time job, maybe 1-2 hours per day, so spend plenty of time at home.
But I agree with you, there is a limit to how many units is ideal to manage. My number is 13, so I’m not planning on buying any more. Net income is 15k/month now, but will grow to 18-20k once I legalize some inlaw units. That’s plenty for our needs, which include owning a nice home in SF, and a plan to get a 2nd home overseas where we have family and enjoy the culture. I’d like to live 50/50 eventually, though we may have to turn the property management to someone at that time.
I’m hesitant to to give any advice, because IMO investing in SF RE is an all in proposition, to do it well and extensively. And that’s basically all I do, so I can really optimize it. For instance, in your case, you could have considered legalizing your rooms by the garage. The added legal sq ft would add more value to your property. Or, if you’re really enterprising, you can now add an ADU (accessory dwelling unit) to most SFH’s in the city now, and rented that out separately for added income. Of course you need the knowledge and bandwidth to do projects like that. Or, you could have 1031 into a nice du or triplex or 2-3 condos, taking your GRM down from 30 to 20. Basically more rent for the same building value. But that’s more property management.
But philosophically, the reason I believe in long term buy and hold, especially in blue chip areas, is that over time things just keep getting better on their own! And unless hell freezes over, prime SF RE should be able to weather most socio-economic malaise we may encounter. I just need to manage and maintain the properties, and appreciation as well as significant rent increases come my way. (As an example, my rents in the mission went up an incredible 50% from 2010 to 2015.) Of course it’s less fun during a downturn, but you need the patience (and foresight) to wait that out. And i don’t mind managing the properties for now. I’m learning how to hyper optimize tenant selection, and creating super efficiency in dealing with tenant issues. All my tenants have been good to great, as this is a high end tenant base. I’m sure I’ll get sick of it, but when I do I’ll have enough added rents to just pop it off to a property manager. That will probably correspond to when I want to spend more time overseas in our 2nd home. Basically I want to keep a tight clean portfolio that I don’t need to mess around with too much anymore. I get a sense of achievement streamlining and simplifying my holdings.
Hope that helps.
Thanks for the suggestions. What is your gross annual rent multiple now based on today’s prices and how old are you? How long have you been accumulating these properties?
It is possible that if you have a baby, your attitude about managing property might change. I thought I was happy to manage all these rentals as well until I had a baby.
Another thing to consider, is that no individual profile fits all. What’s good for you, may not be good for me or other people.
For me, it’s important to focus on assets in my portfolio that generate the biggest returns with the most enjoyment.
Just imagine if you earned 10 times your rental income and had more fun doing so to boot. You might change your tune. I used to think rental income was the most superior type of semi passive income. Then I discovered online income, which blows it out of the water.
A wiser elder investor advised me to never invest passively where you have no control in your real estate investments. I like syndicated real estate, Delaware Statutory Trusts, and REITs as a very small supplement to my real estate portfolio but never to replace my core real estate portfolio holdings.
Real properties give me control, whereas RealtyShares and DST products I have pretty much have no say to the operations of my investments and how my proceeds are invested. My passive income from 10 Single Family Homes nets me right around $100,000 / year. Even if one property is vacant for 3 month, my cash flow from the other 9 properties would spread out my risks. This is the danger of having a large amount of capital tied up into 2-4 very expensive investment properties. My rule of thumb is to not purchase any rental properties above $275,000.
Let’s assume the rental property is valued at $900,000 and land value is $200,000. $700,000 / 27.5 = depreciation of $25,454/year. If you hold onto this property for 10 years, your estimated depreciation recapture tax owed is approximately $63,636 not including the capital gains tax. Doing a 1031 exchange compleletely makes sense in this situation to defer the capital gains and depreciation recapture tax. My purchase price for an investment property has never exceeded $275,000 for a SFR investment.
If I had $500,000 in real estate that I 1031 exchanged into $450,000 and needed the extra $50,000 DST to cover the full exchange, I would investment in a well run college town apartment DST, but I would never exchange this entire amount into a DST or a crowdfunding platform like RealtyShares as I would then lose control of real estate investments. There are many ways to skin the cat and this is just my opinion.
No concerns about loading up another $250k into RealtyShares DME fund? I am in there for $250k myself, and would consider doing more. But is a relatively new platform, and clearly post housing crisis/bubble. On paper it all sounds good, but am a little cautious about loading up the boat.
Sam,
It is not so much the 15% capital gains tax I would be worried about but the 25% depreciation recapture tax. I can easily see the depreciation recapture tax being over $80k for an expensive rental property like yours. Without doing a 1031 exchange you will have to pay both the depreciation recapture tax as well as the capital gains tax.
Would be interested to see your breakdown of taxes for this sale for not doing a 1031.
I don’t really understand the logic behind turning down a family of 6 kids for wear and tear concerns but then wanting 4-5 young/single guys as tenants?
I hate that you have had to experience such awful land lording woes…but I think most good landlords could have informed you that would be the result of multiple single male tenants and income scenario.
John Schaub saved me years of headaches and pain by sharing his wisdom and experience with land-lording. He has a book and does a couple yearly seminars (not the get rich quick kind…it’s legit) Check him out if you ever want to attempt real estate again and “own forever”. I would say my first rental property has truly felt much more like a passive investment. My tenants always pay early and actually improve the property like it’s their own. All techniques and strategies I learned from Schaub.
Granted…8500/month rent in SF is a bit different than what I’m dealing with in TN market..so I understand this isn’t complete apples to apples…but I think a lot of it would translate. I know he has a lot of students in California because he goes there specifically to do a yearly seminar. Anyway..congrats on getting the price you wanted!
It’s pretty simple. The family of 6 offered $7,800 from my $9,000, so I rejected them early on. This was when I thought I could get closer to $8,500-$9,000. This was a 45-50 day tenant hunt process.
The 5 guys were 5 guys from my old employer at the end of the hunt, which I thought would be a hilarious story to share. One less person, $700 more dollars a month, seemed OK. But they bailed at the last minute, and this was at the end.
If I had both offers at the same time, I MAY have gone with the family, but not sure I wouldn’t have just sold. $7,800 X 12 = $93,600. My offer was 29.3X that figure vs the average of 20.5X in the Bay Area. I want to follow BURL and be disciplined. What is the multiple where you are?
Sometimes you win, sometimes you lose. Just have to make the best decision at the time. How many units are you landlording? And what is your rent roll?
The multiple for my current property would be 12x. So nothing near your market for sure.
1425 rent. (~600 cash flow) 2007 SF 3/2 worth about 200-210k. Bought in 2014 for 145k. Lived for a year and used a residential VA loan with zero down. 30 year fixed at 3.25 (yeah yeah I know, you think I’m a sucker for doing fixed…maybe you are right. But if I want to own this house forever..I don’t think I’m losing a lot by locking in 3.25 for 30 years)
The best thing about this purchase was the leverage. I basically have about 2k invested. Which was new carpet and paint when we moved out to turn into rental. My ROI is ridiculous.
My first tenants paid early every month and fixed all the maintenance issues themselves. A ceiling fan fell and the guy texted me a photo. They went to lowes, picked one out and asked permission. Bought it and installed and texted me the results. I credited their rent the value of the fan. Loved them.
New tenants paid former tenants to move out early. I had zero days between tenants and never had to search. They reached out to us on Facebook wanting to rent the property.
It’s been a great first experience and now my main issue is how to scale quickly. I want to build a portfolio of 3-5 homes with my own money to have substantial ROI and case study to go get investors
Schaub has students with 100+ single family’s.
12 is a great multiple to buy and be a landlord. What area is this? If you can handle the tenants and maintenance, I would be buying as much as you can comfortably afford.
I bought my house at around a 22X – 23X multiple, and not only did the rent grow from around $5,500/month to $9,000/month peak (but then back down to ~$7,500 – $8,000/month), the valuation therefore also grew to 29X – 30X. So for me, I’m comfortable cashing out and reinvesting the proceeds in sub 15X multiples.
Yeah I get why you sold and sounds like a solid plan.
My area is Murfreesboro TN. Top ten fastest growing mid size city in nation. Home to largest state university. VA hospital and multiple other great hospitals as well as access to Nashville hospitals and Vanderbilt. 45 mins from downtown Nashville. TN has no income tax. Mild winters.
It seems like it will be a great place to invest for the next 30 years.
Also ties with your article and theory about investing in heartland US.
Wow Sam that was a whole lot of waiting and eagerness to get the deal done. I would have gone crazy just waiting to get that deal done. But the main thing is it’s a done deal.
You timed your selling at about the right time when the SF selling market was really high.
You know what… I am usually 100% for buy and hold- long term/never sell. However, the San Francisco market is a different animal. I think you chose a perfect time to sell… seeing that SF prices are as high as ever. Sure, at some point 20 years from now prices may be higher, buy I can almost promise you that they are going to go much lower before that. Property goes in cycles… and we are on the higher end of one right now.
I’m actually sure that the market is going to go ballistic now that I’ve sold :)
I really donno if property prices will go much lower than 5% – 10% here in SF. SF is so cheap compared to other international cities, especially considering all the income growth opportunities.
But we shall see! I never plan to sell my 2/2 condo rental and my current primary home.
Hi Sam,
As you get older, I doubt you will ever regret selling this house. My daughter is heading to college next year and I’m fast approaching the big 50! I don’t regret not earning the extra million or two while she was younger. Looking back, my biggest regrets would’ve been not being there for the soccer games, or the school plays, or whatever.
I commend you for selling this rental in order to alleviate stress and free up time for your son. The difference between having 10 million and having 12 million will not add any happiness to your life whatsoever. However, being truly available for your son will not only ensure your happiness but your sons happiness as well.
Congrats, Bill
Thank you Bill. As an older father, I appreciate your perspective and insights.
I also believe by biggest regret will be not being there for my son for the next 18 years because I’m too busy chasing money or managing assets.
At some point, accumulating more wealth is absolutely pointless. I kind of feel that way now. Besides, anything more than $10.98M per couple gets taxed at 40% anyway, so forget it! Give any money above that away to people who really need it.
Exciting times about college! I’m envious you are only 50! I’ll be 58 when that time comes. Wow… time will fly.
Sam
Yes! Went through almost the exact same decision process in March of this year! Had a moderate 2/2 that was in need of renovation, but a tight supply market and no big incentive to keep renting led me to finally sell. No longer had the passion to invest ~40k on a home with a market value ~$175k in order to then get market rent. On a marginal basis, that 40k would likely see a 6-8% return in the form of getting market rent instead of a discounted rent due to non-luxury condition, fixtures, etc.
Instead, I took the opportunity to sell, see a good return, and get more passive. Seems to be one of those situations where sitting in the middle offers a weak proposition, either needed to invest more heavily (in this case, a basic renovation with new floors, fixtures, kitchen, bathrooms, etc., to modernize) or take a solid gain since buying in 2012 and invest in a more passive investment elsewhere.
I took the cash! No regrets… only if I buy some stocks that end up wiping out. :)
Yeah, if you spent a lot of money renovating, then you would feel required to get a bigger return on sale or hold on for much longer to get your money back. It’s kinda like going to business school. Better work AT LEAST 10 years after b-school or else what’s the point?
$40K into a $175K home sounds way too much.
I think the new buyers are going to put in $100,000 – $300,000 into my home b/c they want to renovate the kitchen and bathrooms. They were pretty open with everything. I spent ~$4,000 to prep the house (painting, refinishing floors, doing the back yard)
My friend sold their house to a young couple who pretended to be ok with everything regarding the condition of the house. Guess they were concerned about my friend’s feelings. Selling price of $4.5 million, and then the couple scraped it and are rebuilding from the ground up. Got to love the SF Bay Area!!
That’s an amazing story, Sam, thanks for sharing it.
You really took a lot of risks with your initial house payment with a huge mortgage and you even had to go thru the financial crisis as well. Now I understand why you are such a hard worker and why you always advise being frugal.
Thanks Alex. Surviving the financial crisis definitely had a hand in making me want to sell. This bull market is like a second chance at life!
When you go through bad times, you definitely appreciate the good times so much more. I was just consulting with a client who started his career and investing in 2013. EVERYTHING he touched turned to gold, and at 26, he was thinking of walking away from a $450,000 a year comp package……….
It’s a great market to sell in! Perhaps we will see a downturn here in the future and a chance to buy back in Sam!
Congratulations on the sale Sam! The run up in prices may have hit a peak now. Prices in the coastal cities have plateaued and in some cases have come down a bit from 2015. It doesn’t hurt to take a massive profit and you can probably get a better long term return without the stress being that you’re a savvy investor. At a young age you’ve already made a ton on money, more than most people over an entire lifetime. It’s not a great idea to have too much allocated in one sector anyway. As Steven Roth said “the easy money’s been made, now the smart money is going into cash” It’s a great time to be a seller
Indeed, managing rentals are incompatible with happy and healthy living. You’ve made a good decision. With a little person counting on you around the clock, you need to simplify life and free up time. I understand, I have a 17 months old, also a son. It doesn’t get easier as they get a little older, these energized bunnies runs around and wants to be entertained all the time. Welcome to the parenting club.
My mom used to complain about selling her 2 rental properties and only having kept one or else I’d be a multi millionaire now instead of JUST a millionaire. Jesus Christ . She passed away last year but to me my fondest memories were the time we spent together not the times she had to run off to fix something at the rental right after a call from the tenant . Albeit it helped put food on the table.
Now I’m a property manager and I’m glad I only have to manage one place instead of 3 cause I had no clue what I was doing at first . I still don’t honestly. Thank you YouTube and the handyman .
good work–I have never sold a place–but I think I m done expanding with real estate–but it is so easy to expand once you re in the biz–It has been lotsa work over the years but I have learned to become very handy…I learned he building business over time
in a way you made a mistake because you sold a viable business for your kids–but real estate is a lot of work–I understand–stock market is good too–I am amazed that my dividend money comes every month and I don t have to do anything for it…
very much enjoy the honesty in your blog–shibuyarepublic.org