To sell or not to sell? Consider opportunity cost

Dale Beede
Dale Beede

The Grand Junction real estate market peaked between 2006 and 2007, depending on whether you’re talking about commercial or residential real estate.

That means many owners of land and improved commercial real estate have held on to their investments through some pretty tough economic times. While market conditions seem to be improving, the economy still isn’t hitting on all cylinders. For a buyer, this potentially creates an opportunity to purchase land and improved real estate at a realistic price. For the seller, it might mean this is a good time to sell the investment, pay off debt and use the funds for other purposes.

The buy or sell decision often comes down to opportunity cost. What is it costing the owner of a perceived “white elephant” to continue to hold the property in terms of maintenance, property taxes and loan payments? If the owner were to sell and had the cash out of the property, what could be done with that cash? Is there a better opportunity out there? Multi-family housing instead of industrial building ownership? Retail? Office? Land development? Or is it time to just build a savings account?

That’s exactly what hundreds of property owners and potential property buyers ask. Is now the time? Will the market continue to improve? Are we topping out before another decline? Where do we look for answers to these questions?

A look back in time reveals the Grand Junction commercial market bottomed out in 2013 and 2014 after the steep decline that occurred in 2009. An average market cycles fully every 20 to 25 years.

We had the Exxon oil shale debacle in 1982 followed by the 1986 tax reform act. Both events destroyed the commercial real estate market in our community and in the nation until the market reached bottom between 1991 and 1992. A bottom is one thing, but growth and market improvement doesn’t swiftly follow.

The local market edged upward slowly until natural gas development began to create another stronger growth pattern beginning in 2004 and 2005. Our commercial market reached its peak again in 2006 to 2007, a period of 25 years from the date marked by the Exxon pullout.

Using this historical information and assuming all other market influence factors are non-events, we should expect our local market to peak once again in or around 2030.

At first blush, that appears to be a long time to wait for the peak selling season once again. In the interim, we arguably have a “normal” market. That is, the market improves or declines quarterly or annually depending on job growth, interest rates, construction demand and vacant inventory.

One of the only things we can count on in the intervening years is that holding costs — maintenance, property tax and insurance — will continue to rise. Consequently, the opportunity cost that ultimately affects many long-term real estate investors becomes the cost of staying in the game or getting out.

So should investors take a small profit or sell on terms so the tax bite is spread out over several years? Buy additional assets while the market is still somewhat soft or sell out and have a little more time to enjoy retirement? There’s no right or wrong answer. The decision is personal and depends on how the investor spells opportunity.