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 risk. 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 its 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.
Did you hear the one about the landlord, the tenant involved in hard-core drugs, and a raid by the FBI? Or how about the cat lady who moved out without notice but left her cats behind — and unattended — for three weeks?
The horror stories go on. If you’ve been a landlord long enough, you have might have plenty of your own.
Often business ventures begin with idealistic dreams, hopes, and the determination that your experience will be better than others.
Unfortunately, things can turn out significantly different than expected. It may be time to sell the rental property if:
- Being a landlord has become too much work and you’re overextended
- Your tenants are consistently a problem
- Your plan for being a part-time landlord has shifted into full-time work
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.
After years of enjoying being a landlord, that’s where one HomeGo seller found herself.
“It was fun for a while…but I did want to get rid of it quickly in as-is condition. You guys came back fast. Then you set the appointment to come out to the house and the agent I talked to was very good. He wanted to help me sell the place quickly, without having to make repairs, and get a good price for it.”
If you no longer want the stress of maintaining a proper living space for your tenants, or you are tired of dealing with difficult renters, you could have reached your limit.
It’s understandable, being a landlord of a rental property is a significant undertaking. If you are no longer enthusiastic about your landlord responsibilities, you will likely feel much better if you sell your property.
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. There are many reasons your cash flow could be dwindling, and it’s not necessarily always anyone’s fault.
The cost of taxes, utilities, and insurance may have risen, market rents may have dropped, or both.
You didn’t become a landlord for the glory and exciting lifestyle. You likely became a landlord in order to generate income.
It’s a numbers game. Earn more than you spend and you’re winning. Spend more than you earn and you’re losing.
Admitting it’s time to sell your investment property fast can be difficult. It can feel like a greater defeat than being in the red each month.
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.
Now factor in capital gain taxes (which can reach about 22% of the selling price), the prospect of making any necessary repairs, and staring at negative cash flow for who knows how much longer.
After all that, you might discover that your balance sheet has made the decision for you.
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. Nothing about bad tenants, bothersome maintenance, or anything of the sort.
Maybe your eBay store is turning a nice profit, or your stock investments are performing well.
There’s another possibility, as well. Selling a rental property can include a fair amount of downsides: repairs, dealing with a steady stream of potential buyers (or just “lookie-loos”), and similar irritations. Do you have the time or stamina to deal with it all?
One HomeGo seller didn’t, which is why he sold his rental properties the easy way.
“My health had taken a turn for the worse. I lost my kidneys and bladder. We actually had two other homes as well. I sold all three of them because I just didn’t have the wherewithal to continue to try to take care of my own properties. HomeGo appealed to me mainly because of my health. My health went really quickly, and I didn’t know if I was going to recover or not. I didn’t feel like I could leave my wife saddled with the rent houses. I needed a quick turnaround.”
Savvy investors, whether its real estate or another investment, have an exit strategy. They know how much money they want to invest, how much they’re willing to lose, and what their end-game or final goals are.
When you achieve your goals as a landlord and investor, you should consider selling your rental property. Hanging on to it can result in time, energy, and money lost.
5. You Can No Longer Afford the Maintenance
Let’s face it, the cost associated with properly maintaining a rental property can get expensive. As a landlord, you need to be sure the property is habitable for your tenants and is up to par with health codes and regulations.
While some repairs can be chalked up to DIY projects, others can cause quite a hit on your bank account. If you are finding it difficult to fund costly repairs or to maintain your to-do list, selling can be the answer.
There are 48.5 million rental units in the United States, according to HUD. Nearly half of these units are owned by individual investors.
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.
- The property needs repairs (i.e. – new roof, mold remediation, HVAC system replaced)
- Property taxes increase
- Tenants continually late on rent
- Tenants cause damage that’s expensive to repair and skip out
- Difficult to find tenants because the neighborhood or city has changed (major employers moved out; industries shutting down)
- Management and staffing costs for the property are breaking your budget
- On-site management can’t handle the job (too many calls/issues)
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.
As Kenny Rogers explained, “you’ve got to know when to hold ‘em and know when to fold ‘em.”
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.
Maybe you must relocate for a job. Being a remote landlord adds new complexity to managing rentals, as well as knowing when to sell a rental property.
No matter what 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.
From dividends and bonds to CDs and REITs, there are multiple ways to establish a passive income flow. Of these, real estate investing isn’t the easiest, as anyone who’s been a landlord or owned rental properties can tell you.
In fact, Financial Samurai’s ranking of passive income sources notes that real estate investing comes in at the top of the list for the amount of activity required.
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.
If one asset class takes up 50 percent or more of your portfolio, it’s time to rethink and rebalance.
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.
If you’re too tied up in real estate, you may want to consider selling a rental and expanding your investment portfolio to include other options and assets.
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.
When each showing, each maintenance request, each walkthrough, means a phone call, a drive, or (worse) a flight, the time and money invested really adds up.
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.
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.
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
- operating expenses
- property taxes
You may want to try restructuring your investment business as an LLC. When you sell as 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!