This Week's Q & A

Q: My husband and I own four multifamily properties (one six-family, two five-families and one two-family), which we have purchased over the past 10 years, with an eye toward establishing a nest egg for our retirement. Our plan was to sell one property a year for the five years before we retire, a process we should begin in about five years. Although the real estate market has been extremely strong for the past several years, we’re worried about the outlook going forward. Our fear is, if the market goes into a tailspin, as some analysts have predicted, we could end up still owning all the properties when we are ready to retire.

On the other hand, we don’t want to sell prematurely and miss out on further appreciation that would increase our ultimate return on the investments. Given those concerns, should we sell now rather than waiting and risking a downturn? And should we try to sell all the properties, as a portfolio, to a single buyer instead of disposing of them singly, as we had planned? If so, are there realty trusts, investment companies or corporations that would be interested in such a purchase?

A: There are trusts and mutual funds that purchase property, but your properties are too small to be of any interest to them. Even if you could find an individual or a company willing to buy your properties as a package, you would have to sell them at a discount that probably wouldn't be particularly attractive to you.

I think your original plan sounded like a good one for several reasons, not the least of one, your ability to avoid paying a capital gains tax on all the properties in the same year.

It is certainly true that you can’t predict the future and you incur a risk that market conditions will be less favorable when you are ready to sell the first of your properties. But the long-term outlook for real estate generally and for rental property in particular, is reasonably good. Population trends suggest that demand for affordable rental housing is going to grow over the next several years. Unless the conditions that make it virtually impossible to build moderately priced apartments change quickly and miraculously, it is more likely than not that the value of your rental properties will continue to increase.

There are no guarantees of course – with real estate or with any other investment – but the odds are certainly in your favor. Even if circumstances require you to sell one of the properties in a softer market, it is likely that conditions will change again by the time you are ready to sell the next one. In any event, the cyclical nature of real estate argues more strongly against selling prematurely than in favor of that strategy. That advice assumes that you have other retirement assets, in addition to these properties. If not, then you might well want to sell one or more of your properties now to diversify your investments. But that is way outside of my field; you should talk to a financial counselor about your overall investment strategy.