There’s so much chatter out there about what’s going on in the market. I thought I’d stop and try to put some numbers on it. If you have owned property for a long time and you’re thinking that you might want out within the next, say, 5 years maybe up to 10, It is probably a good time to sell. If you’re thinking about investing right now, you have some cash, and you are going to hold onto the property for 10 years or more, now is a great time to buy.

We are on the backside of a peak, the down slope. There’s no two ways about it. Prices are declining and they likely will for another 12-18 months, maybe more depending on the reports you read and believe. After that a rapid recovery is highly unlikely. What is likely is that values plateau at the trough and then climb slowly up over the course of a number of years in a more ‘normal’ market.

So who should sell?
Take a look at this graph that shows historical home prices over the last 120 years adjusted for inflation

When you look at this is there any doubt that we have some further correction to move through? Values were driven more by easy credit than true demand. Multifamily values were largely driven by condo converters and speculators not by solid rental market fundamentals. Make no mistake that time is over and it isn’t coming back this year, or next and probably not the year after that.

So where does this leave you? If you were a beneficiary of this boom and you now have some 50, 60, 70% or more equity in your property, it might be time to make a move in the interest of wealth preservation or growth. Every situation is different, but it’s likely that your equity could be better put to work somewhere else. You can either (1031) exchange into something or get into one of the various retirement options we offer for real estate investors. It all depends on where in your investment career you are. This is still a good time to sell your investment property if you’re in a strong equity position. Waiting or holding out for some big turnaround in the market or a second boom is not in your best interest.

If you plan on retiring with your real estate equity in the next 5 or even 10 years, your property is mostly or fully depreciated, and you have substantial equity - it is time to sell. The idea that you would get more money by waiting any longer is false.

If you have a high rate of equity or own your property outright and you are no longer benefiting from the tax benefits of depreciation the dark blue portion of the graph shows what you can expect your equity to do over the next 10 years. Most experts are expecting that we give up more value over the next 12-18 months, we hit the trough, then we slowly climb out of it with low single digit price appreciation for a number of years.

If however you were to sell and roll your equity into something (TICs, Mutual FUnds, what-have-you) that achieved an average of 7 percent over the next 10 years, a modest goal, then the light blue bar chart is what you can expect. There are three different methods that we use to help you to indefinitely defer all your capital gains and roll 100% of your equity from you real estate into another asset.

So there’s part 1, if you have retirement plans in the next 5-10 years or if you’ve maxed out your equity and depreciation, sell now. If you haven’t and you can wait the 5-10 years, sit tight.

In the second segment of this post I’m going to cover who should buy real investment NOW and why.