You’ve heard the conventional wisdom – “never sell your real estate investment” – but is that always the right move?

Spoiler alert: It’s not.

Absolutes are rarely your friend. As with any professional activity, real estate investing requires continuous optimization, strategic thinking, and a willingness to evolve your strategy.  As an investor, you need to understand when to hold your investments and when you should sell.

Reasons you should not sell:

1. Your original investment thesis still holds. You bought the property for a reason. It may have been because of great cash flow.  Perhaps you believe the property will appreciate over a long term. Or maybe you wanted to subsidize your vacations with a condo in a place you like to visit. Just because time has passed doesn’t mean that the reason you invested originally is no longer valid. If your fundamental reasons for investing remain valid, holding is likely the best strategy.
2. You don’t know what you would do with the money if you sold. If there are no other investments you have lined up, then selling the property would likely result in a large tax bill. In addition, unless you are extremely disciplined, you would likely end up spending the money over time. The end result would be that your investment would disappear and you would have nothing to show for it.
3. You wouldn’t be able to effectively utilize the proceeds. Even if you know where you want to invest the money, there can be reasons that you are not able to. For example, if you want to do a 1031 exchange but would not be able to qualify for the mortgage you would need to complete the transaction you may be better off sticking with your current investment.

As you would expect, you should consider selling when the opposite is true:

1. Your investment thesis has changed. The change may be in the investment itself, for example you don’t believe the property will appreciate further, or it may be because your investment philosophy has changed, for example, you want to invest passively instead of actively. In any case, if the reason you purchased the investment has changed then you should consider whether or not selling it is the right thing.
2. You have a better use for the money. If your investment has done well it likely means that you have equity trapped in it. By selling, you can free up that equity and deploy it into new investments. If you know what you are going to do with the money, and the new investments are expected to perform better over the long term, then selling is likely the right move.
3. You understand the tax implications of the move. There are almost always steps you can take to minimize the taxes that you will be paying. Before you consider selling the property, make sure you understand what your tax mitigation strategy is and that you have taken the necessary steps. If you don’t, you may find yourself with an unpleasant surprise come tax time.

Two concrete examples:

1. I sold a rental property I owned in Washington state when we moved to Hawaii. This property was a small condo that cash flowed well. However, over the time I held the property, the rental rules in Washington became significantly more tenant friendly and I expected that trend to continue. Further, the property had appreciated significantly during my hold. I sold the property and invested the proceeds into a syndication deal that provided a significant capital loss the first year due to cost segregation and bonus depreciation. By taking advantage of this “poor man’s 1031” I was able to move from an active investment to a fully passive one without any taxes due. This move aligned with my philosophy of generating more passive income.
2. I am currently selling a condo in UT that is being managed by a property manager. The property is cash flow positive, and there is a reasonable rate of return based on my original investment. However, it’s value has appreciated significantly over the hold period making the current return on equity lower than I would like to see. If I am able to sell it for close to asking, I would be able to deploy the funds in a way that both increase the cash flow and the overall appreciation potential. I also have accumulated sufficient losses on the property over the years to eliminate any taxes.

It’s not about never selling – it’s about never stopping investing. Think of your portfolio like a long running game, where you need to regularly review where you are, strategically update your position, and always keep moving forward.

This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.