In this article, I will share when to sell a rental property and in what conditions using seven valuable tips that you can use to determine whether it is the Time to Sell or you want to hold a bit more for a few more years.
As a landlord, you may be familiar with the daily requirements of managing a residential or commercial property. You have to be ready to answer your phone even at night. And that can be frustrating sometimes.
Because being a landlord has become too much work. Your tenants consistently create problems for you if you do not set prior rules for them, and the plan for being a part-time landlord will just never happen. It’s always will be a full-time job to manage all those units and tenants. But worry not. These seven tips will help you to tackle those problems.
When to Sell a Rental Property – Is it Time?
But first, you need to be absolutely clear about why you want to sell the property. No investor will ever recommend you to sell a rental property as it is improvable with a little help from some professionals.
For example, if the property is generating negative cash flow, you can make that positive in a few months. If the tenants are creating problems for you, you can also calm them down by using some physiological tricks, and if the value of your property is going down, you can also make that go up by using some math.
But, if you can not find a solution to your problem, and want to get rid of that property anyhow, here are those seven tips on when to sell a rental property and how.
Table of Contents
1. The Rental Property is Now Worth More
As you know, the value of your property appreciates every year. But in some places, it can go way higher than you thought. On average, it increases its value by 6%- 10% year on year, and in some places where the market is improving, it can go up to 50%. That can be a reason for you to sell the property.
If you are ready to make a profit, this may be the sign you need. But I would say think twice before you go for the sale as there are capital gain tax problems, and you must know how to reduce them.
2. The Rental Property Is Depreciating
Not every property will appreciate in value, some will depreciate over time. They will lose value year after year. If you realize it is losing value year on year, you should sell it if there is no solution for you to apply.
For example, the market is going down. People are moving from that place, and all the local businesses are running out of customers. It’s maybe for some geographical change or a law that has affected those people. The reasons can be anything but the market is not improving. That is a clear sign, telling you to sell the rental property before the value drops even further.
3. The Cash Flow is Negative
The cost of taxes, utilities, insurance, and other management bills may have risen in your area, and the rents are not increasing with it as the rent depends on the market, not on the property. If you charge them extra, they will leave. If that happens, if it’s taking money out of your pocket every month, you should consider selling it.
You did not become a landlord for the glory and exciting lifestyle but to generate income. It is a numbers game and the game of income and expenses and Net Operating Income. Calculate it now and then decide when to sell a rental property.
4. The Maintenance is Unaffordable
It can align with the cash flow part, but I want to point it out separately as the maintenance demand a lot of hassle from the manager. For some landlords, the increasing expenses and hassles with tenants can become too much.
Although they will not be bothered about the cash flow. But the headache the maintenance delivers can become so frustrating that they just want to get rid of it. Maintenance like:
- Property taxes have increased in the last few months.
- Tenants never pay on time.
- They are causing damage.
- Finding new tenants has become difficult as the demand is not that good.
- The property needs repairs, like a new roof, remediation, electrical system replacements, and more.
- Site management can’t handle the project.
5. The Whole Rental Market Is Going Down
If the supply of rental units has increased exceptionally and the demand is not matching up, you need to reduce our rents to hold your previous tenants and attract new ones. That will create difficulty for you to cover maintenance costs, mortgages, and taxes. You might want to sell that property and move to a different city where the market is good.
But before you even consider lowering rental rates, take your time to study the real estate rental market. Who knows, the market may be back in a few months.
6. New Laws and Regulations
The regulations are becoming tighter for the landlord because of the pandemic effect. If it has become too tight, you can consider selling the property.
For example, landlords must not evict tenants until the situation gets better. It is good news for tenants but bad news for property owners. If these regulations are costing you money and eating your profits, you should sell the property.
7. So, When to Sell the Property?
The decision is not always in your hands when to sell a rental property. The real estate market will decide when you want to hold it or get rid of it. It’s a personal and mathematical choice, and no one can tell what you should do without being aware of your property data.
But, if you are making losses instead of profits, it’s time to sell it. But consult with an expert who can help you decode or improve the situation, and then make the decision.
So tell me when to sell a rental property. It is time now for you? You must understand every property is different, and the best way to handle things is to understand your goals. Investors purchase properties with plans of having one or two tenants before deciding on selling and moving to another property. Ask yourself the question. I hope it helped. Thanks for reading. See you soon.