When To Sell A Rental Property - HardMoneyHome.com Private Lending Blog

When To Sell A Rental Property

| Posted in General Lending

September 3, 2021

Rental properties can offer real estate investors both long and short term profit opportunities. In the short term, there is the opportunity to charge rent that will cover the cost of the mortgage, expenses, and taxes while also hopefully producing a steady stream of positive income returns.  Longer term, you will eventually sell the property and earn profits from the equity it has built up overtime. The question is, when is it the best time for you to sell your property to see the best results investment wise?  Unfortunately, there isn’t a clear answer for knowing if and when it is time to sell a rental property. There are however, a number of key indicators to consider that are often personal to each individual investor’s situation.  Below we will look at some of the main reasons it could be time to sell a rental property and move on to other investment strategies.

It’s Not Making A Profit

Like all investments, there’s no guarantee a rental property will bring in a profit for you. For various reasons, some rental properties will never produce a profit, and others will stop earning a return over time. Tracking the money coming in as it compares to expenses over time will help you understand your situation.  If the rental property income is in the red for several consecutive months, it could be time to put the house back on the market. As with all investments, there are ups and downs, and it is completely normal for any property to be vacant from time to time.  That said, if you find yourself with a high rate of tenant turnover, are unable to charge enough rent to yield a decent profit, or can’t simply cover your monthly expenses, it could be time to post the “For Sale” sign and list the property.

It Has Appreciated

It is very important that you follow the local real estate rental markets in your area to know when it’s the best time to list your property for sell. For the best results, you should look to sell a property when the income from the sale in the short term will exceed the long-term rental income you would make otherwise.  To figure out which option is most likely to give you the best results, you should calculate your return on equity by dividing your annual profit in rent by your accrued equity.  If you learn your property is appreciating at a rate faster than your rental profits, it might be time to sell.

There Are Other Investment Opportunities

Even if a rental property is earning a solid return, there are still times when other opportunities may present themselves. Maybe there is a property in an up-and-coming neighborhood, or maybe you come across one that is in higher demand for renters. Whatever the reason, selling your current rental property can free you up to pursue other more lucrative opportunities.

You’ve Had It With Real Estate Investing

It takes considerable time and effort to manage a rental property. On top of maintaining the property, you are also responsible for securing tenants who will pay on time and if they don’t, you are then responsible for evicting them. You are responsible for any related expenses, including taxes and unexpected repairs.  If you are no longer able or driven to keep up with all of the responsibilities as a landlord, it’s time to move on. You should, however, avoid selling your property within one year of purchasing it avoid having to pay a short-term capital gains tax which taxed in a much higher bracket.  Homes which are sold after one year are considered long-term capital gains and are taxed at a much lower rate. The difference in that tax rate could save you thousands of dollars once everything is said and done.

Things Are Too Tight Financially

With all of the ups and downs that come in this life, there may come a time where you find yourself in need of a significant amount of money right now and don’t have time to wait on the potential profits on an investment long term. Obviously, before you sell your home for a quick buck, you’ll want to make sure this is the best decision for you and your financial goals. Depending on the situation, it could make more sense to simply take out a loan to cover these unexpected expenses instead of selling off the entire property.

Ultimately, when it comes to whether or not you should sell a rental property, the choice is up to you. Real estate is typically though of as a buy and hold investment. Historically speaking, your property should appreciate over time.  By monitoring the real estate rental market and your properties overall performance, you will be well set up to receive the best bang for your buck and come out on top whenever you decide the time is right for you to move on to other investment opportunities.

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