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Housing prices have continued to rise over the past year as listings have dropped by about half. Given this super-competitive market, is now a better time to sell or should you continue your acquisition cycle? In this episode, we discuss the investing philosophy and considerations you should take when thinking about selling your property. --- Transcript Pierre: Welcome to another episode of the remote real estate investor. I'm Pierre Carrillo. And today I'm here with the usual suspects Tom, Michael and Emil. And today I'm going to be asking them about rising home prices in the markets right now. And if it's a good time to sell instead of buy, so let's jump into it.   Pierre: Alright guys, so, like we talked about previously, my brother and I are working on buying some houses right now. And one of the things that we're seeing is that compared to last year, active listings on the market are down 52% the prices of homes are climbing continuously, there's like 16% up year over year and they're continue to climb. A lot of the projections are saying that they're not going to drop anytime soon. Is this a good time to sell? Are you guys selling? And if not, like when is a good time to sell?   Michael: Yeah, such a good question. Tom do you want to take a first crack at it?   Tom: What's the acronym that Bitcoin guys say hodl, hudl, huddle? Do you know I'm talking about?   Emil: HODL!   Michael: We're not all Bitcoin guys. Now, Tom, we don't know what that is.   Tom: I'm sorry. I'm excited. I bought my first little fractions sliver of one. And I just am using their acronyms now HODL.   So yeah, Pierre good question on, you know, looking at some of the stuff I think for myself, and I would assume also for Michael and Emil, is that we're pretty long term bullish and going through year over year, like there are going to be some trends. But like, over the long time, like, the way that I think about building my real estate portfolio is I just want to build this big cash flow machine. And like, yes, there's going to be fluctuations on like, what's available for sell prices are doing but looking at my North Star is just building this long term growth machine. Like I can't be like chasing a car just like falling metrics. And like, Oh, I should sell right now.   So it's like having a long term perspective. That's not to say that I don't sell because I think sometimes it is opportunistic to sell. A lot of my more recent dispositions have been consolidating in specific markets. So let's say I have a property in like a corner where I don't want to have any scale in that market, maybe it makes sense to sell it, maybe I've caught some nice appreciation, you know, I had a property in the corner of market where they have like, I didn't have a lot of properties. And also there was like, some, like legitimate, like weather concerns of like floods and stuff and like I don't want to sweat that out every single time if I'm not planning to get you know, the right kind of insurance to protect myself against that. So my meandering answer of a question is you know, sometimes there is a place to sell but I you know, I won't sort of panic sell and in monitoring those metrics, because I use my North Star to hang on to so enough pontificating Tom, somebody Michael Emil jump in quick.   Michael: So I think it's a really good question, too. And so I actually am in the process of selling a couple properties. I think I've talked about it on a couple episodes in the past, but I have a six unit out in the Midwest that I'm under contract to sell. And then I just sold a luxury condo in Southern California.   Tom: Oh, congrats, man. That closed.   Michael: Yeah, that close. So I was super excited, thanks for short story long is that they asked for a reduction in rent, because of COVID, which we were happy to give them. The property wasn't cash flowing. Really before that. So then it was a little bit negative. And I said, You know what, there's been so much appreciation here, it's a condo, the HOA fee hasn't moved since I've owned it, which has been a significant amount of time. So I said, You know what, let's just sell the thing. See if we can get for it. We listed it we got two offers on the first day both over ask. So I took the stronger of the two offers, which was actually less money. But I knew it wasn't going to appraise for what the higher offer was anyhow. So it appraised right at what the reasonable offer was, again, over ask 30 day clothes, smooth, easy, made some killer appreciation on it. So I was really excited about that.   And nobody ever went broke taking a profit. So I said you know what, it will hit continue to go up maybe I don't know. But to own the thing for at negative cash flow just really isn't in my cards. And I said took the appreciation walked away. And then the other property was going to make it a value add play, long term buy and hold. But the market just isn't as strong as we anticipated it to be especially because the COVID. So we just say let's sell the thing, again, make a really nice return on it after I did some of the value added work and got it rented up. So I said yeah, now's a great time to sell.   But to your question directly, my personal thesis is that I'm not going to sell unless I have a better use for the money. So I'm not just going to sell for the sake of selling. So in that condo instance, there is appreciation and I had a better use for the money in my development project in the Midwest, there was a ton of equity tied up in there and to do a cash out refi would have just been A, a pain in the butt and B, would have made my cash flow even more negative. So I said I'll just take my profit and walk and then there are a couple properties out in the Midwest that have appreciated like crazy because of the value add work that I've done rehab and getting the property stabilized. So I have agents hitting me up like Dude, are you ready to sell or like the value is crazy? And I just have to for what like there has to be something to run towards as opposed to running away from something. And until I find that next investment there's just no point.   And for me right now and those properties specifically, I have like 10 year fixed debt at really low interest rates. And the properties are cash flowing like machines, because I have so little debt on that, because I paid cash for the rehabs. So they're just in a really good position. And kind of like, Tom, the aim of the game for me right now is cash flow. And so until I have a better option, I'm just gonna sit tight and ride it out.   Pierre: Is there a reason you didn't do a 1031 exchange on that property down south?   Michael: Yeah, it's really good question. A couple people have asked me that. So the reason I didn't is a couple reasons, I didn't want to go buy something else. I wanted the cash to use for my development project. And so it had to be one exchange, all that cash would be tied up in a new deal. And I would have had to go get a new mortgage, which I also didn't really want to do right now for investment property.   Tom: And you live there, right? Isn't there pretty major tax implications if you live at a house for a certain period of time.   Michael: There are but I did not live there. I bought it as a pure investment property. And I never but so if I lived there for two out of five years, I would have got $500,000 tax free capital gains as a married person 250 as a single   Tom: Absolute value, same same number.   Michael: So I mean, I wish I had lived there for two years.   Tom: Nice.   Michael: Yeah, but so I mean, I could have done the cash out refi which would have been a just a real pain in the butt and it would have made that property negative cash flow and use that cash for my project. But I said you know what, I just want my downpayment back and all of the cash flow, all the equity to use, you know, now, so to speak.   Tom: Love it, contextual.   Emil: So for me, I've been in same situation as Tom, I had properties I think I've talked about on a prior episode when I sold so I had properties all over the place. And I decided I was a little too scattered. If I can go back in time, I wouldn't have scattered myself across so many markets. So there was one property that I knew I wasn't interested in going deeper in that market. So like, to me that was the least valuable property for me to sell. And I wanted to reduce the number of markets I was in reduce the number of property managers I had to deal with. So I ended up selling that property. I had it listed right before all the lockdown started, we got into escrow lock downs happens. buyer gets scared walks away. We ended up selling like a month later for around the same price. So I got lucky there. That person has probably had some nice appreciation since then, since every single market has gone up a lot. But that's part of it.   But yeah, I use that money to actually go out and buy a triplex in St. Louis. So for me, the reason I sold the only reason I sold was because I was in too many markets. I wanted to reduce the number of unique markets I was in less property managers less hassle. So that was the reason I sold.   Michael: Emil, A lot of people might say oh, well, you sold out of a cooler market at the time when you sold and bought into a hotter market. Did you think about that at all when you were buying your triplex?   Emil: I think the market I sold out of which by a hotter than the one I'm in currently. But like honestly, if you look most markets right now, every single one seems to be on a tear. Like I haven't really heard of a market staying flat throughout this whole thing, especially for for single family.   Tom: But one of the things we've talked about before is its timing in the market is just something that's just like not real. I mean, you can get lucky and get away with it. But like I don't know, my 10 cents is you know, getting on to the Ferris wheel. And not overthinking trying to time the market. Sorry, I kind of interrupted conversation. Go ahead, Michael continue going.   Michael: It's a really good point.   Emil: None of us are saying, Hey, we sold because we think it's a top or we're trying to look into our crystal ball and say oh, time to get out. You know, Tom wanted to reduce the number of markets he was in same with myself. And then Michael had some other better uses for his cash looked at his portfolio and said, this is the area I could take the most and use it better somewhere else because I have some negative cash flow here. So none of us really trying to time the market just finding better use for dollars.   Michael: Yeah, and I think something else too, especially when it comes to buying and selling. I was chatting with my good friend Zack Breverman, who's a certified financial planner. We had him on the podcast on earlier episode. And we were talking about stock market investments just specifically and I was like man, I'm so scared to buy into or to exchange investments basically sell out of a really good performing a stock and buy something else because it just seems really inflated. And he goes yeah, but you're selling high and buying high. So he says at the end of the day, it's kind of a wash.   Similar with the real estate market. If you're selling high and buying high, you don't feel the impact as much granted now a lot of things are based on the purchase price like property taxes, for instance in California so that could have a really long term ramification but same thing in a down market. So if people are waiting until the market dips, well if they sell then they're likely going to take a hit. Yes, the prices on their purchase are going to be lower but so will their prices on their selling. So in an ideal world you want to sell high buy low but again that's you're trying to time the market so not quite sure what the point is there. Just figured it was good words to say.   Pierre: I think the moral of the story is wait till it gets to the top and sell and then…   Michael: and then wait till it gets to the bottom and buy and when you figure out how to do that call us and let us know how to do it.   Tom: Only buy it when it's low and only sell it when it's high. Exactly. Hold on. I got something tangible on this. Also to add in. So where people have a bad time in real estate is when you like, have to sell. And you're almost like forced to sell, like, perhaps you need the money. Like that's really the way that you lose like in this game is being forced to sell when you perhaps at a discount, you have to sell fast like put yourself in a position to be able to weather like that type of a storm. And just kind of generally speaking, you're going to be in a better place, if you can, one, be proactive and strategic about your acquisitions and buying kind of based on context of what's going on with you. And then number two, like don't be forced to play your hand either, like you have to sell because you need that money for whatever. So just to be able to kind of control your exit and entry, I think is important. And the key to that is just making sure that you have the right reserves. Right. So you're not forced.   Michael: That's so huge, Tom. And I think it's interesting. Oftentimes, when we see on listings, like motivated seller, that means like, oh, there's a deal to be had, because that seller is needing to sell for one reason or another. And so don't be the motivated seller be the unmotivated seller, and the person who has the least to lose, or who cares, the least in the negotiation is going to win. So if you're someone that has to sell for whatever reason, you're likely going to lose that negotiation.   Tom: Yeah, I guess kind of a general theme and thinking about what we've been talking about is, you know, there's all these, these macro things that going on of list prices going out going up and days on market going down, or vice versa. But like really, in making these decisions around selling and buying is more contextual of you, you know, on like, What's going on with you and your strategy and what you're trying to do. So yeah, that's my little bow on the discussion around macro trends and making these types of decisions.   Pierre: Cool. So if I can sum this up, what you guys are saying is always help the numbers make sense to you, regardless of what the market is doing. Don't try to time the market, it's impossible. And what else we have in there as a takeaway.   Tom: I would say be working from a higher level of strategy of, you know, on where you're trying to get to in three years, five years, 10 years, and having that in the back of your mind, as you know, data points in your making your decisions of both buying and selling is, you know, gosh, I'm gonna mess this quote up. But there's like the difference between the weather and the season. That's it. The weather in the season, be thinking about the season, like the weather is gonna come in and do some stuff. But think about the season. I think I might be missing the mark a little bit, but I think you're kind of getting it a little bit where.   Michael: That's a good saying even if it's not one already. We should make it one.   Tom: Yeah. Don't get lost on the weather in the season. Now that it's not landing quite right. It's close. It's close. It's it just needs to bake a little bit longer.     Michael: It’s like seeing the forest through the trees.   Tom: Yes.   Emil: It takes two to tango.   Michael: Yeah. You know, they say there's no crying of baseball?   Emil: If you can't beat them. Join them.   Michael: Yeah. Well, I've got a question for the group here. So I'm looking at buying a new primary with my wife in the Bay Area. And prices are just through the roof here in the Bay Area. And the feds not talking about lowering interest rates anytime soon, which in my opinion, would be one of the biggest reasons that prices would start to slip a little bit or at least slow down.   Emil: You mean raise interest rates?   Michael: Yeah. What did I say? lower interest rates?   Emil: Yeah.   Michael: Yeah, yeah. So the Fed raises the interest rate that I could see as a big reason why the prices might start to slip or things might start to cool down a little bit more do you think is now too crazy of a time to buy in the Bay Area? Or is it is just going to get worse and buy while you can?   Tom: Well, Mike, I would say it's a Michael it's contextual to kind of yourself like you know, are you are you looking to start planting some family seeds and insert? You know, white picket fencing? I mean, is it a good time for you? Right? I don't know. Please jump in. I'm just slopping around in the water. You're on the right track.   Pierre: Where are you looking in the bay?   Michael: In Petaluma?   Pierre: Okay.   Tom: Love Petaluma, good cheese.   Emil: I think, Tom, you're on the right track. Do you feel the need? For me? I'm of the personal residence is not an investment, right? It's a place that you get because you want it because you know, you want to place your family, you want some more room, whatever, don't look at it like an investment. It'd be great if it is, but don't look at it like one. So do you feel like you need at home for a specific reason? And if so, are you in a place to do it, then? Yes, do it. But if you're like, number one thing is I want to deal I don't want to buy at a top or whatever, like you are treating it more of an investment. Maybe you wait, see how it plays out? That's kind of my personal feeling on it right now.   Michael: Of course I'm treating it as an investment. Are you an insane person? There's a inability to look at it as a pure residents.   Emil: I don't think so I think you can. Michael: I wish I could. I wish I could. I like can't get out of my own way in that regard. And so like my wife and I are planning on building some ad use or figuring out how to house hack the thing because it is just so expensive. I can't I just can't stomach that housing payment for just a pure housing payment.   Emil: But you have these other investments like what are the point of investments? Is it just to keep growing money or is it to be able to enjoy certain things in life?   Michael: Wow, wow, now we're getting real deep.   Emil: The point of your investments aren't just to keep stockpiling cash and growing investments. It's like this is personal philosophy, it's to be able to enjoy some things in life to have them pay for either your your cost of living or I don't know, just feel to enjoy some things in life as well. Yeah, you want to keep growing it. But…   Michael: I agree 100%. The thing that's hard for me to wrap my head around is, let's say you just go buy the pure primary investment and your investments do help supplement that housing cost, so it is more palatable. I'm worried about the continued growth rate and savings rate at that point, I want to continue to grow. If once my life is paid for via investments, now, I know my lifestyle is likely going to change over time, and we plan on having kids which I hear they're expensive family meals, is that fair to say?   Tom: Definitely.   Emil: Yeah. Yeah.   Pierre: You can get them at a discount.   Tom: You can get them a discount, exactly. Yeah, just follow the market.   Michael: Is it like you buy two get one free at the hospital kind of a thing. Like that?   Emil: Well, you buy two and then you just have a bunch of leftovers for future kids. So it becomes a little bit cheaper, I guess. clothes and toys and…   Michael: Hand me down.   Emil: Yeah, exactly.   Michael: So getting back on track here, the savings rate will continue to grow to allow for additional feature investment, versus so much of our investable cash, and then investment income going to just cover the housing costs. But I agree 100% I know that there's you know, there's got to be a point to all this. And the investing as a means to an end.   Emil: Yeah, you also work right I   Michael: That I do.   Emil: You're You're also making active income. Yes. So it's not just like your investments would go to pay for your house. Like you're still You're still young,   Michael: Oh, I thank you,   Emil: I know you you're not going to like hang your hat up and be like, I'm chillin, I just want my investments to pay, like, you're still gonna have active income for a while, right? So think about that as well. Yes, your savings rate may not be as high. But it's not like you're planning on retiring soon, where the investments are paying completely for your lifestyle and your your ability to save has just shrunk. It's just paying for your lifestyle.   Michael: Totally. But counterpoint is that I am at a point, thankfully, in my life where we are quite close to if we didn't have a large housing payment, or if we had a small rent payment, we know whatever that looks like, yeah, that we would be able to not have to work.   Emil: Right? Yes, you have the choice, but you're going to and…   Michael: That's true.   Emil: Right? Like you're you're in your 30s are you really gonna hang it up this early?   Michael: Come on, now you've been to Bali? You know how good it is?   Emil: Yeah, work from Bali? Like, hang out, sir. Yeah, do some work. You know what I mean? Like, I think you'd get bored real fast. This is a personal thing. I can't see myself like actually retiring for 20-30 years, like she'll just fun stuff to do and earning some money as well.   Tom: Final tidbit on that discussion around, you know, should I be you know, buying primary residence, I think it's, it's a two kind of two sided vector, where one of them is how much time you're willing to wait. And the other is, like how good of a deal you want to get. So you know, you could get lucky and find something that is, when I say a deal, like probably before, like, just like reasonable, you know, but if you know, the sooner that you're moving to move, you know, to find a primary, the less likely you're going to get a, you know, kind of a good deal. But it's not to say that they're not out there.   I think another consideration, I think probably for yourself who like really is into like rolling up their sleeves and stuff is a property that needs a little bit more work, maybe a little more acreage, like you said, and getting an ADU unit on it. So I think you can thread that needle of still playing offense with your investments on your primary. But it just like I said, like, I think you'll probably just have a little bit of a longer wick of identifying that property. And it's not like, you know, a baby's not coming out like next week where that's important to mom or whatever to like, have that nest set up. So I think you're in a you're in a great spot, and depending on your time, you can, you can thread that needle.   Michael: Alright, thanks, guys.   Tom: If you get too cute for you know, with with buying a property and like trying it, like you could just wait a very long time, but I'm just repeating myself because I know people who was like, you know, put like 15 offers in like nada, nada, nada. It's like, sometimes in really hot markets. It's like, especially with a primary you just got to throw away your logic and say like, Okay, I'm gonna live here, I'm gonna pay what it costs, you know, go ahead Emil Tom done.   Michael: Tom finished mic up, Tom out.   Emil: I forget which one you said it but when you're in a hot market, or like if you're buying, when things are up, or selling when things are up, you have to buy into when things are up anyway. So like, when you buy your home and when you eventually sell it and maybe move I don't know if this is like you're looking at this as your forever home. But let's say it's your starter home, right? And you know, you're going to sell it later. Whatever environment it's in, like if you're selling and it stayed flat or whatever, you're buying into the same kind of environment. So it's not like you're gonna get screwed on when you move or something.   Michael: Right.   Tom:  I do say there's something about seasonality for buying your primary residence. Like right now. I think it's starting to heat up a bunch, the very beginning of the year. I think sometimes there's opportunistic, you know, just coming out of like January or like deep into the winter you know, looking at stuff that's, that's been on the market for a long time…   Michael: After the holidays.   Tom: Yeah, the house that that I ended up buying and I'm living in it was you know, similar conditions it's like super super hot market and then the house was days on market was at like 25 days, which was like an eternity like in that whatever time period so when I looked at it, there was some you know, some kind of like goofy stuff about it, but I was like, Okay, this is all like fixable and you know, found something that was just a little bit weird enough that I think like people weren't about but here I am in a construction site and it's gonna be lovely at some point. It's no it is it's a great spot but anyways, I don't know I was going with that like looking at seasonality kind of like off market there's some good opportunities and based on market but all stuff that you know, Michael, all stuff that you know.   Michael: No this is this is great. And we are so lucky, we're in the process of converting that van to go live in for a while. So that's gonna be our mobile home base to go check out houses and park in different neighborhoods and see what it's like to live there. So we're thankful that we don't have this time pressure.   Tom: Awesome.   Pierre Alright, everybody that was episode. Thanks so much for tuning in. Please like and subscribe anywhere that you listen to your podcasts and we'll see you on the next one.