3 Signs It’s Time to Sell Your Rental Property
One of the most viable economic options to produce revenue is to purchase a rental property. The act of renting is a nice way of producing a steady revenue stream. However, you should periodically review if it is time to sell and continue to the next one, especially if it was a short-term investment.
Sometimes an investment runs its course and the time comes to restructure capital and look for the next opportunity. Other times, the property was purchased under conditions that did not make it ideal to keep for the long-term, thus producing an opportunity to flip and reinvest in another investment vehicle with better conditions. Regardless, continuously evaluating investments is a good way to ensure that these are meeting your financial goals. Therefore, look for the signs that suggest that it may be time to move on.
- The Rent Produces Less than the Cost
The first sign that it is time to sell your rental property is that the home or apartment produces more costs than the actual rent, thus eliminating profit. The question then becomes, can you flip the real estate investment and use those funds to purchase another property that can produce a profit? Although this scenario is never a guarantee, keeping a property that costs more than what it produces does not make sense in the long run. Therefore, review the financials and determine the productivity of the investment. Consider property taxes and review other options to make an objective decision.
There may be many reasons why the property is not producing a profit and it is not necessarily because it was a bad investment. The cost of taxes, services, and property insurance all play a role. Also, the renter’s market will impact rental prices. Take into account the businesses that are nearby. If a major employer has left the area, this will reduce demand. You need to consider the property and what is around the property that will impact the attractiveness of moving to the area. Realistically, maintaining an investment property is not simple or cheap. As a landlord, it is your duty to keep the property in excellent condition for each new tenant. The wear and tear of a house or apartment will increase with time, and this will add to the overall maintenance costs. If you see that the maintenance required to keep the property increases, it may be time to sell and move on to the next project.
The intention may have been to purchase a property close by so that you can take care of maintenance quickly and conveniently should any problem arise. If, however, you had to move, and this is no longer the case, then servicing the home may be more expensive. The added expense in money and time changes the initial conditions. The amount of time it takes to keep a tenant happy can quickly escalate to become more of a burden. Therefore, selling the property and looking for a closer house to invest in might be a great solution. Generally, the closer the investment property to your own home, the easier it is to administrate.
Alternatively, hiring a company to handle these aspects can solve the issue; however, this will increase the costs. Regardless, consider the amount of time that you will need to invest in managing the rental, as this does add up. Ask yourself if you have created the conditions needed to be successful. Meaning, is the property up to date? Are you using free rental application software to obtain the best possible tenants? Does the property attract these tenants? Poor results may be improved by optimizing the home to produce better results. However, if the cost of upgrading is too high and will not produce enough results to warrant the investment, it is time to sell.
- You Need Cash and You have a High-Interest Loan
Needing cash and taking out a loan will produce additional costs. Therefore, if the negotiated interest rate is high and not optimal for your situation, selling a property may be a better option. Regardless if the funds are needed to pay college tuition, cover an unexpected layoff, or handle medical bills, if it’s not enough to cover the expense, it may be a better option to sell and avoid interest-bearing debt. Selling a home is generally not a fast way to obtain capital as it may take some time to sell. Therefore, consider the amount of time needed and plan ahead of time. Selling is not just placing an ad and waiting for offers. It involves other parties including real estate agents and involves other processes such as getting the property ready, which may even include having to invest in repairs and upgrades.
Before, placing your home for sale, consider other options. For example, selling your car by using Auto Auction Mall will produce a quicker sale, thus providing funds faster. Also consider liquidating other faster-selling assets, such a boats or RV, before listing the property for sale. Obviously, the feasibility of these options will depend on the value of the assets compared to the amount of money needed. However, these are quicker options than selling an investment property. Once all the options have been discarded as possibilities, the home is the next logical choice.
- The Valuation of the Property is Much Higher
Although the initial goal of the rental property was not to obtain a high appreciation value, the opportunity may arise. The high valuation may provide the perfect break to sell in a high market. If selling now can produce more money than what the investment can produce in the long-term, it is time to sell. More opportunities may arise in the future; however, it is an unnecessary risk. The capital gained from the sale can produce funds to invest in other assets with higher growth potential. If you doubt whether it is time to sell, ask yourself some questions to complete the analysis and make an informed decision. The more information that you have, the easier the decision. Why do you want to sell or keep the property? Does selling or not selling bring you closer to your financial goals? What is the specific goal of the investment? Will you produce better results with the property or reinvesting in another property? If you are not making money with your investment, can you improve the results by modifying or upgrading the home?
Essentially, these signs are all based on one single aspect — the cost-benefit relationship associated with renting the home. If the rental activity is not producing the same results as before, do something about the situation. The option is to improve the rental so that the price can be modified, or sell the property and move on to the next project. Forget any emotional ties toward the investment. Think of new projects that can produce better results. Base all decisions on numbers and results, as these will provide the best course of action. Ultimately, you are the best person to determine if the sacrifice is worth it or if it is time to sell the property. Once you evaluate all the information, making a determination will be much easier.