Owning a rental property is a popular way to create passive income. And of course, that means it’s only worth holding onto that property when your investment is paying off. You don’t want to hold onto it too long.
So, how do you discern when it’s the right time to sell your rental property?
There are many factors to weigh before you make your decision. We’re here to help—which is why we’ve put together this list of signs to look for when you’re thinking about moving on from your real estate rental investment.
What to Consider before Selling Your Rental Property
These 8 signals can be indications that you’re ready to let go of a particular piece of real estate.
1. You No Longer Desire to Be a Landlord
Owning a rental property means you bear all the responsibilities of a landlord—from handling emergency calls and making fast repairs to locating reliable tenants and updating the property every time someone moves out.
This can create a lot of work and stress—sometimes too much. So, if you’re no longer enjoying the process, it may be time to sell.
2. Property Value Has Increased
Like any other form of investment, there can be times when it’s best to cash out and enjoy the profits. When it comes to real estate, a seller’s market is often the ideal time to find a buyer for your rental property.
If the amount of profit you can make from selling outweighs the benefits of collecting monthly rents, or if the neighborhood the property is located in is dramatically increasing in property values (such as Hot Springs, AR), selling may be a good decision.
3. Rents Are Dropping
Local real estate trends are a major reason to consider selling, especially if you’re noticing that rents are decreasing around your property. There are a number of reasons rents may drop—such as an increase of rentals on the market.
If the area where your property is located is seeing a decrease in rents, this will eventually affect your bottom line. Do the math. If the income you’ll make monthly doesn’t meet your needs, it may be worth selling your rental.
4. Too Much Maintenance Is Needed
Any type of real estate requires maintenance. But often, rentals require a higher level of care because they can experience much more traffic and harder use than the home you live in. Tenants may not always treat the property well.
And as the rental ages, there will be even more need for repairs or replacement of high-ticket items such as siding, windows, and roofing. At some point, it may be worth letting high-maintenance properties go in order to buy a different property that requires much less upkeep.
5. You’ve Had a Major Life Event
Managing and leasing real estate can be a time-consuming and costly process. And it’s okay to acknowledge that there are times in life when you may not have the flexibility to handle overseeing your rental. Perhaps that Oklahoma lake house once was a breeze to manage, but life has changed and now it’s a hassle.
It’s worthwhile to reevaluate your capacity to hold onto rental property whenever you experience a significant change in your life: marriage, divorce, birth of a child, job change, a death in the family, and so on.
6. You Prefer to Find Different Ways to Invest
Collecting rent from tenants is one way to bring in additional income, but it’s not the only way. Bonds, stock dividends, CDs, mutual funds and real estate investment trusts (REITs) can all be great ways to earn money, and they are all less work than being a landlord.
It’s also important to diversify your investments to help ride out the ups and downs of economic changes. If your rental is the only investment you have, it may make sense to sell and find several places to invest the profits. Savvy investors understand that there are times to switch investment vehicles, and perhaps this is one such time for you.
7. Property Taxes Are Too High
Rising property taxes will limit the profit you’re making on a rental property. They’re also an important sign that it may be time to cash out of your particular piece of real estate—as a higher property tax usually comes in conjunction with the increasing popularity of a specific suburban neighborhood.
On top of this issue, you may also see rising utilities fees and other expenses that, along with maintenance, add up to costs that are not balanced by sufficient profit from the rent you’re collecting. When that’s the case, it’s definitely time to consider selling.
8. You’re Dissatisfied with Managing Property from Out of Town
It is not easy to be a landlord; it’s even harder when you’re trying to do so from a distance. You’re likely dealing with a number of challenges, such as finding a trustworthy property manager and responding quickly when a rental goes downhill somehow.
If you are experiencing these challenges, it may be worth selling the long-distance property and reinvesting near your current home instead.
Steps to Take When You’re Ready to Sell
- Give Notice – Give your tenants adequate notice so they can find a new home and have time to complete their move.
- Schedule Showings – Coordinate showing of the property by communicating your expectations clearly with tenants, property managers, and your realtor.
- Plan for Capital Gains – Discuss the tax implications of selling the property, such as capital gains, with your accountant.
- Find a Great Realtor – Look for a real estate agent who knows the ins and outs of the property’s local market and can guide you through finding the right buyer.
We Make It Easy to Sell Your Rental Property
Selling rental properties can be a breeze when you work with the right team. At McGraw REALTORS, we’re dedicated to helping property owners like you get the best price for your real estate. Reach out to us to discover how we can help you sell your home.