A Rising Tide Raises All Ships

A rising tide raises all ships. Many real estate investors have benefitted from the Real Estate ‘s bull run since the mortgage crisis of 2009. As the overall market across property types have increased in value significantly over the last 12 year, you have to ask what is next and where do we go from here?

With uncertainty in the market is it time to take some of your chips off the table?

Should you cash in your chips and go home or rebalance your portfolio?

The best answer for yourself can be answered by understanding what your personal goals are and where you are in your investment cycle. Are you still in growth mode for your portfolio or are you closer to or already in your retirement and need secure and reliable income?

All your investment decisions should be matched up against:

Your investment philosophy, experience, and goals should determine your next portfolio moves- and really all moves for that matter.

If you are more of a real estate “collector” over time than maybe you should decide to hold and keep. One option could be to refinance at a lower rate to have more after tax income or you could sell the properties in your portfolio that are profitable currently, but not ideally located in your long term plans.

If you are in growth mode, it may make more sense to use equity you’ve built to add to your portfolio. You can do a 1031 (deferred exchange) where you sell a few smaller properties and consolidate the proceeds into one larger property so that your equity compounds for you and you save money through economies of scale as you are still in expansion mode. If you’re in growth mode you still have time on your side to add properties and take small risks as you should have capital ready for a good investment opportunity. 

For the retired investor or family private office that has most of the loan paid off already and relies on the properties for retirement income then you would have to dive deeper and see what makes sense for your portfolio. A retired investor could hire some staff or a property management company so they have more time and keep their properties. They could also cash out at profit and distribute to their heirs.

For most investors who are somewhere in between it might make sense to refinance at the current low rates and pull cash out tax free- just in case it’s needed. Most commercial lenders don’t allow more leverage than a 60-70% LTV and require a debt coverage ratio of 1.2+, so max leverage isn’t quite as risky as it is for residential real estate.  In any market cash is king and having cash on hand allows investors to jump at the right opportunity while having a solid “just in case” account.

So what is your next move?