Lately, I have been thinking about why I should sell my multifamily property investments rather than holding them for the next few years, and I came up with a few solid reasons I wanted to share with you.
1 –Interest Rates
If interest rates continue to go up so will Cap Rates, and as we all know as Cap Rates go up, property Values go down. Current interest rates are roughly 4.75% and they are predicting a hike to 5.25% in 2019. Therefore, lets take a look at how an interest rate hike would impact your value? Let’s do some very simple math –
100 Units – NOI (Net Operating Income) = $500,000 at current interest rates could sell at a 6% cap rate or $8.33M
Same Property with a .5% interest rate hike would likely have the same effect on the cap rate – moving the cap rate to 6.5%. Now that same property is worth $7.69M which is a $640k decrease in property value.
2 –Housing Trends
Aside from interest rates, everyone knows that all up trends must come down! We have been on a great 10 year run in real estate and since 2018 we have seen housing trends headed down. Vacancy rates in the KC Metro have started creeping up; supply is starting to outperform the demand and as many more developments are coming to the market in 2019 this trend is not likely to stop over the next couple of years. This is likely to impact class A property the most, but I am expecting some trickledown effect on class B property types.
3 –Tax Benefits
Most importantly, new tax laws have been passed regarding Cost Segregation and Opportunity Zones, therefore now would be a great time to use the sales proceeds to leverage some huge tax savings with alternate investment options.
I have spent the past few years focusing on multifamily property investment deals and have had great success. As a coach and mentor to other real estate investors, many people have come to me for advice when they are entering into a new deal, or just looking for direction in finding a profitable deal. If you are looking for guidance on your next investment deal lets connect and make it happen.