Caitlin's Corner

Is there a "Best" Time to Sell?

In late March, 2020, around midnight, I sat in my office chair, on the second floor of my home. The piercing light of my laptop was shining on my face, which had begun to stare off into the corner. I could hear the clacking of my husband’s keyboard from down in the kitchen. Our kids had been asleep for hours, and this was our new nightly routine.

Like every day since COVID took hold, we’d spent today see-sawing between finger painting with our kids in a thrown-together homeschool classroom that used to just be our yard, and guzzling caffeine while hunched over our desks, trying to squeeze out every last bit of productivity we could until each of our finger painting shifts began again.

On this night, I felt especially fatigued. For the past week, ski resorts in Colorado had been shutting down. No one knew when or if they would open next season. Among the list of shuddered resorts was a small and mighty one near to our hearts. It was in the town we had dreamed of living in, and that we even owned a home in. Our plan when we bought it had made us feel clever: ‘buy a place now- it’s 2015. We’ll spend one or two more years in our Denver jobs, then move to this town, have a place to live, and start our new adventure. Until then, we’ll rent the house out.’ And that’s what we had done in the five years since. Well- that, and watch as our two-person dream morphed into a four-person reality. Turns out adding two munchkins to the mix makes it harder to leave two stable salaries and a supportive community of other families.

Our mountain town rental had been a solid performer- no vacancy in its history, market rents, excellent renters, and an asset that saw greater appreciation than we could have expected in five years. But those were pre-COVID days. Now, without an operating ski resort or the anticipated hoards of tourists rubbing elbows in its picturesque village, our mountain town was in trouble. That meant our rental was in trouble, too.

As I let my thoughts wander on that late night in my office, I came to a dreary conclusion: we need to sell that rental. Here were my reasons:

• The home is in a vacation market, one that is likely to get hit the hardest during recession (which we were rapidly heading towards!).
• Our renters work for the ski resort, and since the future of ski resorts is uncertain, so is the future of the home’s rentability.
• The home’s purpose when we bought it was not to be a rental forever; it was for us to live in once we freed ourselves from our city jobs. Five years later, it was no longer fit as a home for us. We were now a family of four, and wouldn’t have chosen that particular location for our kids.
• The market had appreciated well- it felt like a good time to sell, since we could make a profit, and roll that profit into another rental that better fit our criteria.

We did sell that rental. We talked to our agent the first week of April and it had sold by the last week of May. We lined up a new property to buy and did a 1031 exchange. In five years, that house made $125K in appreciation and $15K in rent. Our Internal Rate of Return (IRR) was over 21%! It was an amazing investment, even though it was never really meant to be.

We felt like we’d squeaked out of that market just in time. But, you can probably guess what happened next. People throughout the country, with their pent-up COVID energy, flocked to beautiful, open spaces. Remote work and stir-craziness drove people to relocate, sending real estate prices through the roof, especially in Colorado’s resort towns. Our mountain rental that had sold for $380K over Memorial weekend was worth $510K by the end of August. You read that right: had we held this home for three more months, we would have been $130K richer. But we didn’t, and that stung for awhile.

You know what though? We made a decision to sell for reasons that made a lot of sense to us. It was based on numbers, AND it was based on our family’s circumstance. The home we had purchased as a partial investment, but mostly as a future landing spot, no longer held a place in our family’s list of potential destinations. We still wanted to end up in that town (footnote: we did, another four years later), but we knew that home was no longer the right place for us.

🎯 When is the Right Time to Sell?

People ask me a lot: “how do I know when the right time is to sell?”, but there is no single answer to that. Sell when the numbers are right to you. Sell when the asset has done what you wanted it to do. Sell when you’re ready to be done with the asset. Sell when you are ready for something different. Sell when the sale can improve your life.

Ryan Israel, CIO to Bill Ackman’s hedge fund company Pershing Square, recently made the following comments on stage about when to sell a stock:

1. You were wrong about the investment. New information invalidates the original investment plan.
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2. You've already been paid for what's left. Price and value are significantly in your favor, pulling forward future growth expectations into the present.
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3. The opportunity cost of holding is too high. The projected future compounding of the investment is inferior to other opportunities available to you.

In my analysis of that mountain town home we sold, it aligns with Israel’s guidelines:
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1. We were wrong about the investment. It was a great financial investment for us, but we had intended to invest in our lifestyle and spend our future in this home. We made a guess about the lifestyle we would have in the near-term, but we were wrong. This was a huge motivator in our decision to sell.
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2. We had already been paid well for what was left. We hadn’t expected to achieve the appreciation we did in only five years. We couldn’t have known that the appreciation would have only exploded from there, but the fact was that it had already exceeded our expectations of performance.
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3. We had felt that the opportunity cost of holding this home had become too high, given the worsening market conditions we expected. Our next opportunity was in the rental we had purchased in the 1031 exchange- it was a triplex in Phoenix. This was our first 1031, and it gave us the confidence and momentum to continue this pattern of selling when market conditions helped us satisfy our performance expectations, and buy in the next place that fit our criteria. We went on to do three more 1031 exchanges- trading into a portfolio that finally met our evolved criteria.

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Our Latest Sale

We landed in that mountain town after all, a little less than a year ago. And do you know what made that happen? We had to make the decision to sell a life that wasn’t serving us in the way we had wanted. My husband and I both had to leave jobs that were draining us. We decided to sell that safe life and buy into one that better fit our criteria. So far, it’s been the best investment yet.

What I'm Reading

📕 The Rise and Fall of 23andMe​

Going from a $6B valuation to penny stocks is quite the zinger, and makes it seem like Anne Wojcicki, co-founder and former CEO of 23andMe, missed her perfect time to sell. But, I’d like to think that Wojcicki is more motivated than ever to explore her bigger goal for 23andMe: revolutionizing the pharmaceutical industry. Now that it’s clear 23andMe won’t take her there, maybe she’s ready to sell that idea and explore a new way of achieving her dream. A new opportunity for her to sell- and maybe this time is the best time.

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