This might be the question I hear most often. “Should I hold or should I sell?” And honestly, it’s the hardest one to answer because it depends entirely on your situation.
But I can tell you how I think about it. And I can share what I’ve seen other owners go through when they’re wrestling with the same question.
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Calculate Real Cash-on-Cash Return: NOI divided by your equity invested. If you’re getting 4% cash return, cap rates are probably better than your hold. Selling and redeploying might make sense. -
Assess Deferred Maintenance Pipeline: Roof due in 3 years? Major HVAC replacement? Parking lot repaving? If major capital is coming, factor it into hold-or-sell decision. -
Know Your Market’s Cap Rate: If your property generates 5% NOI and market cap rates are 6.5%, you’re sitting on value. If you sell and reinvest at 6.5%, you’re better off. -
Evaluate Tenant Stability: Excellent tenants with 5+ years left? Hold it. Tenants rolling soon or unstable? Management burden increases. Selling might make sense. -
Tax Impact of Selling: Will you owe 25-35% of proceeds in capital gains and recapture tax? That changes the math. A 1031 exchange might defer taxes and keep money working.
When holding makes sense
Your building is cash flowing well. Expenses are under control. Tenants are solid. You’re not losing sleep over it. The cash-on-cash return on your equity is still competitive. If all of that is true, there’s no rush to sell.
Hold vs. sell decision framework
Answer these questions to decide whether to hold or sell.
- Is your cash-on-cash return above 5% after all expenses and taxes?
- Are your primary leases stable for 3+ more years?
- Is your property requiring constant maintenance calls or major capital soon?
- Are you enjoying management or exhausted by it?
- Are comparable buildings trading at cap rates higher than your property’s current return?
The key number that a lot of people miss is the return on equity, not the return on cost. Say you bought a building for $500K and it’s worth $1.5M now. It nets you $90K a year. Your return on cost is 18%. Great. But your return on equity is 6%. Is that good enough? Could you reinvest that $1.5M somewhere and earn more? That’s the real question.
When selling makes sense
Your expenses are climbing faster than your rents. You’re looking at a major capital expenditure (roof, paving, HVAC) that you don’t want to fund. You’re tired of managing tenants. You’re approaching retirement and want to simplify. Your building needs work you can’t or don’t want to do.
I talked to an owner in Rock Hill last year who was the perfect example. His building was worth about $1.8M. It was generating $110K NOI. But he had a $200K roof job coming and his two biggest tenants’ leases were expiring within 18 months. If those tenants left, he’d need to spend $60K on tenant improvements to re-lease the space. So he was looking at potentially $260K in capital requirements over the next two years. He sold to me. Took the certainty over the risk.
The questions I’d ask yourself
What’s your return on equity? Not your return on what you paid. Your return on what the building is worth today.
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How much capital does the building need in the next 3-5 years? Roof, paving, HVAC, tenant improvements. Add it up honestly.
How much of your time does it take? If you’re self-managing and spending 10+ hours a week on it, that’s a cost. A real one.
What would you do with the proceeds? If you don’t have a plan for the money, holding might be fine. If you know exactly what you’d do, if there’s a better investment or you want to pay off debt or fund retirement, selling makes more sense.
There’s no wrong answer
I’m not going to pressure anyone to sell. That’s not what I do. But if you’re sitting on the fence in Fayetteville or anywhere in the Carolinas, I’m happy to run the numbers with you. I’ll tell you what I’d pay and you can use that as one data point in your decision.
Seller takeaway
If you own commercial property and are wrestling with hold versus sell, call Roth Capital at 704-600-3839. Jim Kittridge will help you calculate your cash flow, understand your market’s cap rates, and decide what makes financial and personal sense.
704-600-3839. No pressure, no commitment. Just a straight answer.
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