Are you deciding whether or not to sell your rental property? If headlines are any indication, now may be the time…
Rental properties have long been regarded as some of the best investments in the personal finance marketplace. After all, generating passive income, diversifying your investment portfolio, taking advantage of appreciation, and enjoying certain tax benefits is certainly nothing to scoff at.
But what happens when your personal financial situation or events on the global stage change dramatically? It’s no secret that today’s market is characterized by sky-high property values, low mortgage rates, and plenty of eager buyers. So, the general consensus is that now is an ideal time to sell.
Accordingly, real estate investors across the nation have recently been tempted to pare down or sell off their rental portfolios entirely. But committing to selling investment property is a gamble. After all, there are many factors to consider – such as:
So, it’s completely normal to feel conflicted when deciding if you should sell your rental property or not. Luckily, there are few key indications that now may be the time:
The number one goal of investing in rental properties is to generate income. Unfortunately, though, losing out on investments is quite common. If you find yourself sitting on a property that is worth far more than the price you purchased it for, then selling might be wise.
It’s also important to consider the fact that rent rates are unpredictable and can fluctuate in favor of the tenant rather than the owner. So, not only will you miss out on the equity you would have seen had you sold, you might eventually see an income decline.
Pro Tip: Don’t rely on the Zestimate! The best way to determine your property’s value, and solidify what you might make with a sale, is to contact an agent and ask for a comparative market analysis (CMA). The agent will analyze comparable properties that have recently sold nearby to determine a competitive listing price. If the value meets (or, fingers crossed, exceeds) the expected number, you might consider putting the property up for sale. While it’s certainly not a guarantee, don’t forget that bidding wars and offers over listing price have become commonplace in today’s hyper-competitive market.
Psst! Need an investor-friendly agent who can help you navigate the risks, challenges, and headaches of selling rental property in today’s market? You can learn more about partnering with Evernest here. >>
Negative cash flow is when you’re spending more on your business than you’re earning from it. For many real estate investors, this situation is a dealbreaker.
After all, passive income is often the main incentive behind investing in real estate. From setting competitive rent rates to taking advantage of tax benefits, we’re all here to uplevel our income.
For some investors, negative cash flow may be a temporary roadblock. In most situations, though, hoping things will turn out better and holding on to real estate investments can be risky. In many cases, owners who delay selling properties with negative cash flow end up hemorrhaging money each month. If this sounds familiar, you may want to sell your rental property.
In most cases, it’s best to sell a negative cash flow property as soon as possible, unless there’s an absolute certainty that rental prices will go up.
As an owner, part of your responsibility is to ensure that the property is habitable for tenants and doesn’t violate any laws, rules, or regulations before renting it out. Whether you choose to do this yourself or hire a property manager, the cost of maintaining these standards isn’t exactly negligible. And, of course, unforeseen issues often arise, like –
Plus, many repairs can’t simply be fixed with your handy dandy toolbox. From plumbing issues to landscaping, many jobs will require a professional, and just a few high-priced repairs can pack a punch. For example, foundation repairs can cost anywhere from $450 to $11,000, and a new roof could run you $6,000.
At the end of the day, if you’re struggling to finance the maintenance or pay the bills, selling your rental could be a good idea.
Suggested Listening: 5 Most Difficult Things About Buying and Managing Rental Properties
While it’s true that certain homebuying and selling seasons are busier than others, fluctuations in the real estate market have more to do with supply and demand than time of year. That’s why it’s critical to monitor local trends and determine whether you’re seeing a buyer’s or seller’s market.
A seller’s market is characterized by high demand and limited supply. In other words, there are many interested home buyers, but very few properties for them to choose from. And because there are fewer homes available, the home sellers are at an advantage.
Homes sell faster in a seller’s market, as buyers must compete with one another for the property. Buyers are often willing to spend more on a home in these market conditions than they would’ve otherwise. Plus, as mortgage lenders are offering low interest rates, nothing can hold these buyers back. Sellers can raise their asking prices, offload properties as-is, or even benefit from waived contingencies. Sounds like a party, huh?
Pro Tip: In a seller’s market, it’s more important than ever to analyze the bids received carefully. Sellers are frequently so focused on selecting the highest offer that they overlook each buyer’s financial soundness. The last thing anyone wants is to accept an unrealistic or bad-faith offer and then have to re-list their home when the sale falls through, so keep this in mind if you do choose to sell your rental property.
Mortgage rates fell to historic lows toward the start of the COVID-19 pandemic. There was little growth in the following years which, coupled with more time spent at home, resulted in a highly competitive real estate market and a surge in demand for homeownership.
These low interest rates have now narrowed the gap between the cost of renting and the cost of buying. As a result, rental owners are losing long-term tenants to homeownership. More and more tenants in A, B, and even C class neighborhoods are now opting to purchase their own homes as opposed to renting.
Without reliable tenants, you may struggle to maintain the property. Under these circumstances, the benefits of selling your rental may outweigh the cons.
Of course, taking on the responsibilities of a rental property is tiresome – we know first-hand. You have to look after the place 24/7/365! After all, these tasks generally need attention immediately and don’t exactly stick to business hours.
Between troublesome tenants, pending maintenance, fluctuating values, and even natural disasters, being an owner can certainly take a toll.
If you are consistently stressed over maintaining a proper living space for your tenants, have had enough with the difficult renters, or haven’t signed on with a world-class property management company (ahem), it might be time to say goodbye.
In this case, selling the rental property may feel like a massive weight off your shoulders.
Pro Tip: If you’re over the maintenance but aren’t ready to sell, consider hiring a property manager. We’ll help you navigate the risks, challenges, and headaches of buying, selling, or managing rental property in today’s market. You can learn more about partnering with Evernest here. >>
It’s important to remember that weighing whether or not you should sell your rental property is a personal decision. The right answer will depend entirely on your goals, outlook, financial situation, local market, and the property itself.
An investor-friendly agent will be key in helping you weigh the pros and cons and come to a decision. Lucky for you, we know some people! Now, let’s sell that property…
Whether you’re selling 5 properties or 50, you don’t have to go it alone.
If you’re ready to sell your investment property, here are 3 steps to get started today:
Taylor Streitmatter is Evernest’s Director of Brokerage. His diverse expertise includes sales, operations, and brokerage management.
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