Investing in real estate is all about maximizing your profit. If you’re a landlord, you’ve probably enjoyed the passive income. However, holding onto a rental property for too long can come with risks. But how can you tell it’s the right time to sell your rental property?
Choosing the absolute perfect time to sell can feel like picking the winning lottery numbers — a gamble. Trying to fully predict the precise movements of the real estate market is like trying to divine the exact six numbers that will hit the jackpot. And there are more factors in play than just the market. You also need to consider your time, effort, and enjoyment of being a landlord when determining whether or not it's time to make a sale and move on.
Should I Sell or Keep my Investment Property
Ultimately, selling an investment property makes the most financial sense when you plan on using the profits to invest in a stronger opportunity or to diversify your portfolio. If you are considering parting ways with your rental property, here are the signs it might be time.
When to Sell Investment Property
You should consider selling an investment property in a sellers market if the profit you earn outweighs the future property value growth and the passive rental income. If not selling in a sellers market, you should plan to use those profits to invest in a stronger opportunity or diversify your portfolio.
1. Being a Landlord Is More Trouble Than It’s Worth
As a landlord, you are likely very familiar with the day-in-day-out requirements of managing a property. Since emergency maintenance calls don’t exactly abide by business hours, you need to be ready to answer your phone at all times, and this can take a toll. If being a landlord has become too much work and you’re overextended, your tenants are consistently a problem, or your plan for being a part-time landlord has shifted into full-time work, it may be time to sell the rental property.
Caption: When to Sell Rental Property: Expert Advice on the Top 10 Signs
Landlord aggravations aren’t limited to tenants, of course. There are maintenance issues to fret over, fluctuating values, even natural disasters such as earthquakes and floods. If the stress isn’t equal to the revenue, it might just be time to wave goodbye.
2. Your Property Is Now Worth More Than When You Bought It
As far as real estate investment goes, the name of the game is ensuring property appreciation. If you have successfully flipped your property and it is now worth more than the price you bought it for, selling could earn more than renting. Maybe you bought a property in a neighborhood that has grown and is thriving. That’s great! It also (likely) means your property value has increased. If you’re ready to make a profit, this could be the sign you need.
3. You No Longer See a Positive Cash Flow
If you are losing money each month, you might need to reevaluate the situation. The cost of taxes, utilities, and insurance may have risen, market rents may have dropped, or both. If you’re spending more than you earn, admitting it’s time to sell your investment property fast can be difficult. But there’s a simple question to ask yourself that removes all emotion from the equation. As The Washington Post puts it: "The test for you is to think about whether you’d buy the investment now. … Investors have a tendency to keep bad assets for too long, hoping that they’ll turn around. But if you wouldn’t buy this investment today, then you should dump it."
4. You’re Ready to Move On
Things change. Maybe it’s time for new scenery or you have another opportunity calling your name. No matter your reason for being a landlord, it’s your right to do what is best for yourself. If you’ve decided to make a change in your life and being a landlord is not part of your plan, selling your rental property is a logical solution. Sometimes, something new comes along and you simply feel it’s time to move on.
5. You Can No Longer Afford the Maintenance
Let's face it, the cost associated with properly maintaining a rental property can get expensive. If you are finding it difficult to fund costly repairs or to maintain your to-do list, selling can be the answer. Owning a rental property and taking on the role of landlord requires time and money. For some landlords, the increasing expenses and hassles with tenants become too much.
Caption: When to Sell Rental Property: Expert Advice on the Top 10 Signs
6. You Can Read the Writing on the Wall
This isn’t your first rodeo with rental properties and troublesome tenants. Even if your numbers are currently good, you understand they won’t always look good. Seller’s markets have a shelf life, after all. Millennials driving today’s hot markets will eventually cool off a bit. Job growth in your area may already be teetering on the edge of a bad fall. If you’re wondering when you should sell your rental property, even the Gambler would agree that cashing out of your rental property during the most profitable seller’s market since 2007 is as good a time as any.
7. You Experience a Major Life Event
When it comes to life, one thing is certain… uncertainty. No matter how well you plan and how careful you are, the unexpected will happen. And all too often, major life events get in the way of dealing with a rental property. Maybe you’re celebrating a birth, an adoption, or a marriage. Perhaps you’ve experienced a divorce, a death in the family, or had an accident or health problem that makes it difficult to focus on taking care of your rental properties. Whatever the cause, large life changes can monopolize your time and money, while leading to a serious reevaluation of rental property ownership.
8. You Have Better Ways to Generate Passive Income
Real estate investing can be a great way to generate a passive income stream. But REI isn’t the only game in town and, as with most types of investing, diversification is key. If you treat dealing with rental properties as just another “day job”, this may not matter so much. But if you got into REI in hopes of generating a passive income stream that’s truly, well, passive, the amount of work involved may make you rethink when you should sell your rental property.
9. Your Net Worth is Tied Up in One Portfolio
As we just noted, asset diversification is key. This tends to be the case whether you invest in real estate or the stock market. If your net worth is all tied up in one place, such as just one single-family rental property, or one portfolio — i.e. you’re over-invested in real estate in general — it may be time to diversify your holdings. After all, if the housing market crashes, you don’t want to risk your financial health and future stability by not having a backup plan.
10. You’re a Remote Landlord
Being a landlord is difficult enough. You’ve got to find tenants and screen them. You’ve got to do the paperwork and ensure regulations are met. You’ve got to deal with troublesome tenants. And then there are the repairs which, let’s face it, seem never-ending at times. Keeping up with landlord duties requires significant time and effort, no matter where you do it from. But attempting the landlord lifestyle from a remote location adds yet another layer of complexity into an already complex situation. If you’re managing properties remotely, consider selling. You can always reinvest locally and save yourself the stress.
Should I Sell my Rental Property?
So all signs point to sell… what comes next? When you’ve made the decision to sell a rental property, you’ll need to move quickly. After all, you don’t want to make mortgage payments on a rental that’s sitting empty for any longer than you absolutely have to. That’s just throwing money away. But many investors run into complications when trying to sell a rental property. Let’s look at a few common issues.
Tenant Troubles
First, tenants: How do you sell a rental with tenants? Start by ensuring you’re up to date on the many regulations surrounding tenant and landlord rights. Regardless of what the law requires, give your tenants as much notice as you can that you’re about to sell. They’ll also need to be aware of any potential home showings, which involves cleaning… and repairing… and preparing… phew! Now is a time when you want your tenants on your side, so treating them with respect and keeping them in the loop just makes sense.
Tax Tribulations
Now let’s talk taxes. Since it’s an investment, you’ll be liable for capital gains taxes on the sale of the property. Keep in mind, however, that the amount of tax you owe depends on how much profit you make from the sale. This is a scenario where making the most profit isn’t always the most beneficial, tax-wise. You can help reduce your tax burden by keeping track of the deductions associated with renting the property. The Internal Revenue Service allows you to take deductions for certain business expenses like mortgage interest, depreciation, operating expenses, property taxes, and repairs. You may want to try restructuring your investment business as an LLC. When you sell a property, you can keep the profits under the LLC, which makes it easy to reinvest and avoid paying capital gains. If you can manage a fast sale and then reinvest the money into another, similar property, you may also avoid some taxes by doing a 1031 exchange. Whatever method you choose, it’s always a good idea to work with a tax professional and get legal advice.
How to Sell Your Rental Property Fast
Of course, there’s an easier way to avoid these problems. When it’s time to sell that rental, the key is getting the deal done quickly. Selling to HomeGo checks all the boxes. Not only can you sell your rental property in as little as 7 days, but we’ll also provide a cash offer on the spot. No hidden fees, no closing costs, no agents’ commissions… and that cash offer is firm. It won’t be reduced later after the results of an inspection or appraisal. You won’t have to worry about your tenants leaving the house a mess for showings, or making costly repairs. HomeGo purchases rental houses as-is, without the fees and commissions that eat into profits. Why not make it easy when you know it’s time to sell your rental? Sell to HomeGo and move on to your next investment quickly!
