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

by Dina Sartore-Bodo

To sell or to stay, that is the question.

And it’s not just baby boomers asking it (though many of them seem firmly in the "stay" category). Investors who cleaned up over the past few years—snapping up properties during the sub-3% mortgage era—are now rethinking their next move.

With inventory still tight, mortgage rates starting to ease, and eager buyers flooding the market, it could be a tempting moment to cash out.

But then what? What’s the smarter play: taking the profits and reinvesting in the stock market, or holding on and letting that equity keep compounding over time?

The answer depends on how much money you want to put your hands on right now.

A TikTok video made the rounds recently of an investor in New Jersey sharing her financial planner’s recommendation to sell her two rental properties. As a child-free, single woman in her 30s, the investor reached out to the financial planner to ask about the future of her investments. Given that she doesn’t have anyone to leave the homes to and doesn’t particularly enjoy being a landlord, the financial planner told her she could make more money selling the two properties and sticking the money in the stock market.

While the comment section was flooded with conflicting conversations, other financial planners we spoke to agreed with this advice—to a point.

“It depends on the details, but there can be a reasonable case for it,” explains Andrew Latham, a certified financial planner with SuperMoney.com.

“Historically, broad stock market indexes like the S&P 500 have outperformed residential real estate in terms of total return, with long-term annualized returns averaging around 7% to 10% after inflation. Real estate typically sees price appreciation in the 3% to 4% range annually.“

“One way to think about that is, let's say a property is worth $500,000 today, and after all expenses, you net $20,000 on that property,” says Craig Kirsner, president, financial adviser, and insurance professional at Kirsner Wealth Management.

“That means that you're only earning a 4% return on the $500,000 investment. That's not a lot compared to how much risk you're taking. Yes, if you sell, you'll probably pay some long-term capital gains. But it's better to sell on the way up than on the way down, if that's your goal.”

Aside from the financial benefits, real estate investments can be more work than stocks. Between managing the finances of each property and dealing with all of the landlord duties, there’s a lot of sweat equity that goes into owning rentals.

“For the average investor who is not looking to actively manage properties, deal with tenants, or navigate local market complexities, a low-cost, diversified index fund strategy is often more efficient, requires less time, and carries less risk from poor management or market shifts,” adds Latham.

“Experienced real estate investors can absolutely outperform the market, but their success depends on many variables, including financing, local knowledge, operational efficiency, and tax strategy.”

The argument for investors staying put

On the flip side, investors are still poised to make a significant profit from holding on to their rental properties.

Aside from being a great source of passive income, homes in desirable locations like New Jersey will continue to appreciate and grow equity with every passing year.

Homes appreciated on average 4.5% in 2024, according to Realtor.com® data. While admittedly the forecast is slated to be less this year at 2.5%, if you look at the 2013–19 historical average of +6.5%, that’s nothing to scoff at.

This is especially true if you’re a retiree or headed into retirement.

“Many older investors, especially those in retirement, prefer to hold real estate because it provides steady income, serves as an inflation hedge, and does not have the daily volatility of the stock market,” explains Latham. “Rental income often functions like a private pension, which is why many retirees choose to keep their properties.”

But the other reason to stay put is the tax burden. When you sell a capital asset—whether it’s stock or bonds, a rental property, or something similar—the difference between what you bought the asset for and what you sell it for is a capital gain (if you make money) or loss (if you lose money). The IRS levies a special tax rate on capital gains, ranging from 0% to 20%, or even higher in some unique instances.

If you’ve owned an asset for a year or longer before selling it—and most investors have—you’ll be taxed at a long-term capital gains rate. While lower than your income tax rate, this rate is still based on your income. In 2024, if you made less than $518,900, you were taxed at 15%; if you made more, you would be taxed at 20%.

Of course, there are ways to lighten the burden, like a 1031 exchange. However, experts agree that there is more money right now in renting property out than there is coughing up tax dollars to the IRS.

Should investors pull out of real estate and put money in stocks?

In the end, there’s no question that stock prices are much more volatile than real estate, yet stocks offer more flexibility and a higher rate of return when times are good.

The best advice that all advisers agree on is that the best strategy is to diversify. In the case of the TikTok investor, selling off one of her two properties could lighten her landlord load, but still keep a steady real estate investment in her portfolio.

“The one thing to keep in mind is that if you are going to sell the real estate because you think prices are high and you want to lock in your gains and move that money into the stock market, it's very important that your adviser doesn't take more risk with your money than you're comfortable with,” says Kirsner.

“You don't want to get out the frying pan and into the fryer, especially if preservation of your assets is your goal at this point.”

Or, to put it another way: There is nothing either good or bad, but think it over before you make it so.