The Tax Relief Act of 1997 and its capital gains exclusions for homeowners who live in their homes only two years spawned a new kind of homebuyer -- the daytrader investor who buys property with selling in mind. An investor writes Realty Times and asks if it's a good time to sell his Bend, Indiana property.

Hi Blanche,

I own two properties in Bend.

1. An acre + of land in Aubrey Butte adjacent to 00's of acres of government owned land with a view of the Deschuttes river below and the mountains at eye level. I purchased this property three years ago and have watched the value climb quickly. In this somewhat stalled market, should I sell now and take my profits or wait it out for 2,3,5 years hoping to realize a much larger gain? 5 years is my horizon for selling at the longest.

2. I won a triplex adjacent (sic) to Drake Park. I just bought this a year ago and have made some $ or at least am at a break even stage with the improvements I have done. I am a negative cash flow of 6-700/month. Do you recommend I list this in the spring or waiting out the downturn hoping for an upturn soon? I appreciate your articles and perspective.

Thank you, Investor Dan

Realty Times responds:

Dan, the short answer is that the longer you hold land the more it is likely to gain in value, especially when populations are growing and there is limited building due to conservation, government-owned acreage, geographical limitations, etc.

Consider why people want to live in Bend, and then you'll know that incredible mountains views, a nice town to buy your groceries in, and others coming after you who appreciate your investment and are willing to pay more for it are all a good thing.

One piece of information you gave that quickened my pulse is that your land in Aubrey Butte adjoins acres of government land. You have water as well as mountain views. If you know it to be unlikely that the government will sell that land, you are in clover, my friend. Those views will never lose their appeal to homebuyers. Water views, particularly, are among second-home and rural buyers' favorite amenities.

No one can advise you whether or not to sell, because only you know whether your investment plans have met their goals. It's easy to second guess yourself and assume that a big profit should be taken. My question is where would you buy another comparable property, and what would it cost you? That should tell you whether to buy, sell, or hold.

Obviously you want to make money instead of break even, so you're not having as much fun with the Drake Park property, but, hey -- that's real estate. Are you able to lease the properties easily? Are rentals equal to ten percent of the loan value in your area. In other words, if you paid $100,000, can you rent it for $1,000 a month? And does that cover your mortgage, repairs, insurance, taxes, etc.? If you can't rent it for profit, then maybe there's a better market for first time homebuyers would like to live in one of your units as condo buyers. But they won't buy unless the benefits of owning outweigh the benefits of renting.

You could talk to the city and find out what you need to know to make a decision, including whether there are local regulations you need to meet to convert and sell the property.

You're certainly welcome to wait until January or February to list the properties, but confirm this with a local Realtor. If you don't already have a Realtor, consider one of these folks.

According to Realtor Rad Dyer, the market could flatten, but that seems less likely due to the influx of people moving to the region. It might slow but not stall.

I would work with a Realtor if I were you. As a new investor, you can't afford to make mistakes that wipe out the profits you earn from your wise decisions or lucky guesses.

I'd also work with a Realtor and a tax counselor who are skilled in real estate investment. As this article by Diane Kennedy suggests, your tax consequences can be different on how you operate and turn the property.

And in this business, I'd rather be lucky than smart, because sometimes markets don't follow logic.

Good luck to you and let us know what you decide to do.

Published: November 15, 2006

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