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You can make a lot of money on a rental property and still reach a point where keeping it no longer makes sense.
Those two ideas are not contradictory.
Suppose you bought a rental years ago.
You got a great price.
You locked in cheap financing.
The tenant helped pay down your mortgage.
The property appreciated significantly.
It may have been an excellent investment.
But none of that answers the question you need to ask today:
What is the equity I have committed to this property producing for me now?
Here’s a simple hypothetical example.
Your rental is worth $500,000.
You owe $200,000.
So you have approximately $300,000 of current equity in the property.
After operating expenses, debt service and a realistic allowance for major replacements, suppose it produces $6,000 per year in free cash flow.
$6,000 ÷ $300,000 = 2% current cash yield on equity.
That is NOT the same thing as cash-on-cash return on your original investment.
And it is NOT your total return.
Your property may continue appreciating. Your tenant may continue paying down your mortgage. There may also be tax considerations.
But if you’re approaching retirement and increasingly care about spendable income, I think the 2% deserves your attention.
Because your decision today isn’t whether buying the property 10 years ago was smart.
It’s whether you would choose to keep $300,000 invested there today given your current alternatives and objectives.
Selling isn’t automatically the answer either.
There are transaction costs. There may be taxes. You may be giving up extraordinarily attractive financing. And whatever you invest the proceeds into has its own risks.
So I wouldn’t start by asking:
“Should I sell my rentals?”
I’d start with a much better question:
What is my current equity actually doing for me?
Then make the decision using today’s numbers, not yesterday’s purchase price.
