Sell or Stay? The High-Stakes Decision for Real Estate Investors

The age-old question: should you sell or should you stay?

This isn't just a question for baby boomers (though many are leaning toward staying). Investors who profited in recent years buying properties during the era of sub-3% mortgage rates are now rethinking their next move.

With housing inventory still limited, mortgage rates beginning to ease, and eager buyers flooding the market, it might seem like a great time to cash out.

But what’s next? Should you take the profits and put them into stocks, or hold on to your properties and let the equity grow even more?

The answer largely depends on how much immediate profit you want.

Financial Advisors Recommend Selling

A viral TikTok video recently featured a New Jersey investor sharing her financial advisor’s recommendation to sell her two rental properties. As a single woman in her 30s with no children, she approached the advisor to discuss her investment future. Since she didn’t enjoy being a landlord and had no one to inherit the properties, the advisor suggested she sell and invest the proceeds into the stock market.

While this video sparked debates, many other financial planners we spoke to agreed up to a point.

According to Andrew Latham, a certified financial planner at SuperMoney.com: "There can be a valid case for selling in some scenarios."

Historically, the broader stock market has outperformed residential real estate, with annual returns averaging 7% to 10% after inflation. On the other hand, real estate typically appreciates at a much slower rate of about 3% to 4% annually.

"For example, if a property is worth $500,000 and generates a net return of $20,000 annually after expenses," Latham says, "that’s a return of just 4% on a $500,000 investment. That’s not much for the risk you’re taking."

Selling might incur long-term capital gains taxes, but Latham points out that it’s often better to sell while prices are still rising.

Moreover, real estate can be a lot of work managing finances and dealing with tenants. "For the average investor who doesn't want to actively manage properties or deal with tenants, investing in a low-cost, diversified index fund might be a more efficient, less risky option," Latham adds.

The Argument for Holding On to Property

On the flip side, there’s still significant potential for profit if investors choose to hold on to their properties.

Real estate is a steady source of passive income, and properties in high-demand locations, like New Jersey, will continue to appreciate over time.

In 2024, the average home appreciated by 4.5%, according to Realtor.com®. Although predictions for 2025 are slightly lower at 2.5%, historical averages from 2013–2019 show a 6.5% increase in property value. That’s a notable return, especially when considering real estate’s long-term stability.

This is especially relevant for retirees or those nearing retirement.

"Many older investors prefer to keep real estate because it offers consistent income, acts as an inflation hedge, and avoids the volatility of the stock market," says Latham. "Rental income is like a private pension, which is why many retirees choose to keep their properties."

Tax Implications and Other Considerations

When you sell an asset be it a stock or real estate the IRS taxes you on the difference between the original purchase price and the sale price. This tax is called a capital gain, and the rate varies from 0% to 20%, depending on your income.

If you’ve owned the asset for over a year, you’ll face long-term capital gains taxes. While this is generally lower than your income tax rate, it still depends on how much you make. In 2024, anyone making less than $518,900 will pay a 15% tax on capital gains; anyone making more will pay 20%.

For those concerned about the tax burden, a 1031 exchange could help defer taxes, but experts agree that renting out properties generally offers more financial benefit than selling and paying capital gains taxes.

Should You Sell or Stay?

The decision ultimately boils down to your financial goals. While stocks tend to be more volatile, they offer greater flexibility and a higher potential return when the market is doing well.

The best advice most financial experts give is to diversify. In the case of the TikTok investor, selling one of her properties and moving some of that capital into stocks might reduce her landlord responsibilities while still maintaining exposure to real estate.

"Just remember that if you’re selling real estate because you think the market is at a peak and want to move into stocks, be cautious," says Craig Kirsner, president of Kirsner Wealth Management. "You don’t want to trade one risk for another, especially if your goal is to preserve assets."

In the end, there's no one-size-fits-all answer. Take your time to weigh the pros and cons before making such an important financial decision.