Real estate investment is known for nice cash flow and huge returns when you divest. But how do you know when to sell rental property? Sell too soon, and you may find that you left money on the table. Sell too late, and you may discover that you missed the best chance to maximize your ROI.
Keep in mind that all investors are unique, as are their rental properties and the markets where they are located. At HUNTAHOME, we offer property management in Dallas and Fort Worth, and we’ve had the unique opportunity to walk alongside and advise a huge collection of investors as they made decisions on whether or not to sell. Based on our experience, here’s a look at 10 ideas for when to sell rental property.
- When You Can Do Something Better With Your Money
You always want to put your money where it can do the most for you. Your dollars can often do a lot when invested in real estate, but sometimes you come across better opportunities.
Assuming you’re properly diversified, you should welcome the opportunity to sell a rental property and use your returns to invest in something with even greater possibility.
- When You Start Collecting Retirement
Most people will live off some combination of IRA investments, 401(k) investments and social security in their retirement years. Also, aging into Medicare is another huge step toward carefree living.
When you hit an age where you can access funds in your IRA and 401(k) without penalty, and when you gain access to social security and Medicare, that’s a good time to consider selling your rental properties. Access to these funds as well as the equity in your rental properties will set you up nicely to live the life you want in retirement.
- When You Exhaust Depreciation
As a real estate investor, you should be taking advantage of depreciation on your taxes. The IRS allows for 27.5 years of “straight-line” depreciation as outlined in Publication 946.
Now, 27.5 years is a long time to hold onto a rental property. But, if you do, consider selling as your depreciation benefit runs out. As an added bonus, your property should have appreciated nicely after 27-plus years, giving you a nice return on your initial investment.
- When Big Updates are Coming
Maintenance, upkeep and minor repairs are a fact of life when you own rental properties. But consider selling as you start getting close to major updates like replacing the roof.
Also, it’s a good idea to consider selling if you need to make major updates in order to maintain rental rates. For example, if you’ve been renting out a home for more than a decade, it may be time for new floors, fresh paint, kitchen and bathroom upgrades, etc. You may be excited about those updates — but you may also prefer a different owner make them.
- When You’re Leaving Town
Some real estate investors make a killing from out of town. Others prefer owning property that is located in the area where they live. If you’re an investor with properties in your home city, consider selling if and when you move somewhere new.
There are plenty of ways to act as an absentee landlord. But it’s not for everyone.
- When Your Property Fails to Cash Flow
A strong real estate investment allows you to at least break even year after year while the property continues to appreciate. If you’re doing better than break even, you’ve found an excellent investment.
But what if your property is delivering a negative cash flow? Perhaps you find yourself sinking $200 or $300 into the property on a monthly basis. If that’s the case, you may want to sell, collect your return on investment, and then find a better opportunity that will at least break even.
- When Returns Would Be Astounding
Real estate markets sometimes get on hot streaks. During these hot streaks, home values grow exponentially and inventory for prospective buyers is low. If you have the opportunity to sell and get an astounding return on your investment, go for it. You can even take your return and reinvest in a neighborhood or market that you think is going to be the next one to get hot.
- When You Need the Equity
Sometimes you just need the money. Perhaps your investment property is providing a cash flow month after month and the home’s value continues to rise. But you need the equity to pay for a child’s college or wedding, or perhaps you lost your day job and need cash to make ends meet.
And that’s perfectly OK. In fact, it’s more than OK — it’s one of the reasons why real estate investing is such a good idea. You have equity you can access if and when needed, and there’s little in the way of penalty or tax obligation when you do sell.
- When You Feel it’s Time
No one knows your situation or portfolio better than you. That’s why you need to trust your gut instinct. If your instinct is to sell, then put your property on the market. You can follow the tips listed above, and you can seek wise counsel from friends and colleagues — but the best time to sell is when you fell it’s time.
- When You’ve Had Enough
There are so many benefits to real estate investment. But there can also be serious headaches.
Sometimes investors buy the wrong properties. Sometimes those properties need major repairs that thwart the opportunity for returns. And sometimes tenants cause such problems that you’d rather do anything other than serve as a landlord. When you’ve had enough, you can always sell.
Or, you can hire a property manager.
Before You Sell, Consider Your Options
If you’re wondering when to sell rental property, and if you’re feeling like you’ve had enough, consider your options before putting the home on the market.
At HUNTAHOME, we provide DFW property management services that make your life easy. Enjoy your cash flow and your home’s appreciation while we take care of the day-to-day responsibilities that can sometimes feel overwhelming.
Get in touch today to learn more about property management in Fort Worth and Dallas from HUNTAHOME.