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How to Make the Choice to Keep or Sell Your Rental Property

We assume the property will go up 4% annually in value over the next 5 years, based on expected trends.  Using this data, we can calculate the Internal Rate of Return (IRR) to see the average profit year over year, which compounds over time. 

With $450K in equity locked up, a 3.8% cap rate, and 4% appreciation, his annual returns are 8%.  As we analyzed in a recent episode, 8% returns are significantly lower than what he could be making by investing that money elsewhere.

Looking at the returns, it’s clear that the investor is better off selling the house and paying capital gains taxes.  When Lon showed this information to the investor, he was in disbelief.  Because he’s getting $14K in cash flow every year, he assumed his returns would be higher. 

Now, he plans on selling both houses, using some of the proceeds to buy the new home, and putting the rest in passive investments.  He’s on track to generate a lot more wealth over time. 

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