Folks, I'm 60 years old and I taught high-school English for ten years before I ever owned a rental, so I'll tell you up front: I'm the cheapest guy you'll ever meet, and I don't sell a property because I'm bored with it. Every few months an investor sits across from me — sometimes at my kitchen table here in Illinois, sometimes on a Zoom — and asks some version of the same thing: "Chris, I've got a rental that's working fine, but should I sell it and take the equity off the table, or keep holding it?"
Here's the short answer, because I know you came here for an answer and not a webinar: there is no formula that spits out yes or no. But there is an honest way to think it through, and it starts with separating the money question from the feelings question. Most folks tangle those two together and then wonder why the decision keeps them up at night. Let me walk you through how I actually run this with an owner, using the real numbers from a building one of my clients ran past me.
Get the real numbers before you get an opinion
The numbers are sacred. People lie about numbers all the time — to their accountant, to their spouse, to themselves — but the numbers themselves don't lie. So before you have a single opinion about selling, you've got to feed yourself honest ones.
Start with what the property actually produces. Not the gross rent. The net. Take your monthly rent and subtract everything that comes out of it: principal and interest on the mortgage, property taxes, insurance, any management fee, and a real reserve for vacancy and repairs. That last one trips folks up. Setting aside money for a vacancy you didn't have this month still counts as spent. It's real money you can't pretend isn't owed. I have folks run 8% of gross rent for vacancy and another chunk for repairs on anything older than 1980, and around here in central Illinois a lot of the stock my clients own is older than that.
Let me show you with one a client of mine brought me. He's got a single-family rental over in Peoria that rents for $1,250 a month. After the mortgage, the taxes (and Illinois property taxes are no joke, that one runs about $3,400 a year), insurance, and his reserves, he's netting right around $300 a month. That's $3,600 a year in true cash flow.
Now figure your equity. What would the place sell for today, minus the agent commission and closing costs, minus what you still owe? On that Peoria house, say it'd sell for $165,000, he'd net about $153,000 after costs, and he owes $98,000. That's $55,000 of his money sitting inside that asset.
Divide the cash flow by the equity and you get your real return: $3,600 on $55,000 is about 6.5% a year on the capital trapped in that house. That's the number that actually matters, and it's the one almost nobody runs. If you want to go deeper on hitting a target like that, I walk through the full math in my piece on how to achieve 6-8% cash-on-cash returns in multi-family real estate — same arithmetic, bigger buildings.
Here's why that return-on-equity number is the whole ballgame. A house netting $700 a month on $70,000 of equity is earning you 12%. A house netting $400 a month on $80,000 of equity is earning you 6%. On a spreadsheet they're both "profitable rentals." In real life they are two completely different conversations.
The honest case for selling
There are good, unsentimental reasons to sell a property that's technically making money. I'll give you the three I see most.
The first is lazy equity. This is the most common one, and it sneaks up on you. When a property appreciates faster than its rent climbs — which is exactly what happened to a lot of us through 2021 and 2022 — your equity balloons but your cash flow barely moves. So your return on that bigger pile of equity quietly falls. My client's Peoria house earning 6.5% on $55,000 isn't broken. But if he could sell, pay the taxes, and put that $55,000 into something earning 10%, he'd be leaving real money on the table by holding out of habit. Owning a property just because you already own it is not a strategy.
The second is a market you've stopped believing in. If the town is losing population, the building stock is aging into a wave of expensive repairs, or the price range you're in is getting overbuilt, then holding and hoping isn't a plan. I've watched investors marry a zip code that was quietly emptying out for a decade. The rent held up right until it didn't.
The third one never shows up on the spreadsheet at all: the property is wearing you out. High tenant turnover, a rough block, a furnace that needs replacing every other winter. Those are real costs even though they don't land in your cash-on-cash number. Some properties drain more than they give back, and the toll is on you, not the ledger. That's exactly why I tell folks to evaluate the HVAC and the big mechanicals before they ever buy — but if you already own a system that's bleeding you every January, that's a sell signal hiding in plain sight.
The honest case for holding
Now the other side, and this is usually where I land with a property that's genuinely performing.
Three good things happen every single month you hold a cash-flowing rental, and they happen at the same time. You collect rent. Your tenant pays down your mortgage principal for you — that's somebody else buying you the building a little more each month. And the property may be appreciating on top of that. Those three streams compound in a way that's awful hard to recreate by selling and starting from zero. The longer you've held, the more of that mortgage your tenants have already knocked out, and the more your original down payment is doing the heavy lifting. If you've never fully separated those two engines in your head, I broke them apart in appreciation vs. cash flow in rental property — knowing which one is actually carrying your deal changes the sell decision completely.
Then there's the tax bite, and this is the part folks forget right up until the closing table. When you sell, you owe capital gains on the profit: figure 15% to 20% at the federal level plus Illinois' cut on top. And there's a second one almost nobody plans for: depreciation recapture. The IRS taxes back all that depreciation you've been happily writing off, at up to 25%. On a property a client of mine had held fifteen years, that recapture alone was a five-figure surprise. It does not show up in the simple "what would I net from a sale" math, and it can turn a sale that looked great into a wash. Holding defers every dollar of that, maybe forever.
How to pull equity out without selling
Sometimes the real question hiding behind "should I sell?" is simpler: "I want this equity working in a better deal, and I need cash to do it." You don't always have to sell to get there.
A cash-out refinance lets you take a new, bigger mortgage on the property and pocket the difference, while keeping the building and everything it produces. The catch is you've just added debt, which eats your monthly cash flow, plus the refi costs themselves. And in a higher-rate stretch like we've been in, pulling equity out at today's rates is a lot less appealing than it was back when money was cheap. That math has genuinely changed in the last couple of years — don't run it off your memory of 2021.
The other tool is a 1031 exchange. It lets you sell and defer that capital gains tax by rolling the whole thing into a replacement property, as long as you hit the deadlines. And those deadlines have teeth: 45 days to name your replacement, 180 days to close. It is not a casual move you make on a whim. But for an investor sitting on a big gain with a clear next building already in view, it's often the smartest path through.
The one question I always come back to
When I work through this with an owner, I eventually ask them one question, and it cuts right through the fog: if you had this equity sitting in your bank account as cash today, would you go out and buy this exact property, at this price, in this condition?
If yes — keep it. The asset has earned its place, and your capital is doing real work.
If no — then you're holding it because you already own it, not because it's the best home for that money today. That's the honest version of the conversation, and most folks know which answer is true the second they hear the question.
Whatever you decide, give the property its due. Run the numbers cold, without the attachment, but also give it credit for everything it's handed you — the rent, the equity, the paydown, the years it carried you. If you're still in the "is any of this even worth it" stage, I wrote a whole piece on whether rental property is actually worth it that's worth reading before you make a move you can't take back.
And here's the last thing, because I'm an old grumpy grandpa-looking guy who's been wrong before and changed his mind: no for now is not no forever, in either direction. The sell-or-keep call is a snapshot you take with the facts you've got today. Make it with clear numbers and honest reasoning. That's the whole discipline.
Chris Albin and CRARE Instruction do not guarantee any level of money, success, or lifestyle from learning any of the strategies discussed here. The information in this post is of a general nature and is not intended to replace specific advice you may receive from a licensed professional for legal, financial, or business decisions. Individual results will vary depending on several factors, including your starting point, your effort, and your resources. All information is believed to be true and accurate, and is subject to change without notice.
