Your rental property has served you well for years, providing you with steady income from renters. But if it seems like you’re constantly dealing with maintenance issues or your tenants can’t keep up with rental pricing increases, you might be wondering when should I sell my rental property?
We’ll go over signs that it might be time to sell your rental home or real estate investment property.
1. The property is starting to require a lot of work.
Every rental or investment property requires some maintenance. Maybe there’s a leak, a tenant’s microwave needs to be replaced or the walls require a new coat of paint. Regular home maintenance is part of the job as a homeowner. Minor improvements (less than $500) are typically planned for by tenants and can be easily remedied. However, major repairs that impair a tenant’s ability to live in or enjoy the home typically fall onto the landlord (e.g. you) to fix.
If you’re finding that the property is a constant pain in the neck, or it requires large fixes like a new roof or HVAC system, it may be time to reconsider.
There comes a time when every landlord needs to balance whether the cost of the work is worth the investment.
2. The value of your property is changing.
There are ebbs and flows in the real estate market with property values going up or down.
When the housing market is in favor of sellers, you might consider taking advantage of the profit you’ll make on selling the rental unit.
On the flip side, if the neighborhood is deteriorating or property values are going down, you might want to ditch your investment property while you still can.
Maybe due to the changing market, you are losing money monthly. However, a few months of negative cash flow isn’t always a reason to sell. But if your long-term investment is turning into short-term rentals due to tenant turnover, it is necessary to identify the cause behind tenants leaving in such a hurry.
3. Finding good tenants is becoming more difficult.
We wish that everyone we rent to would pay their rent on time, respect the space and be a good neighbor. However, this is not the case for every tenant and is a risk many landlords try to mitigate when finding new renters.
Since maintenance calls can come at all hours of the night, you need to be ready to answer your phone at all times. This can be challenging if you are like many investors who have other daily responsibilities.
If you’re having a hard time finding good tenants, there’s a revolving door due to rent hikes beyond your control, or regulations are allowing your tenants to postpone rent, your investment property might be more of a headache than it’s worth.
4. The property taxes are too high.
Unlike a primary residence where you are exempt from capital gains up to a certain threshold, investment properties are not exempt from capital gains at any amount.
There are ways you can work to lower your taxes, including writing off your transportation to manage the property, home offices, insurance, or the cost of having contractors maintain the property. If all of these tax write-offs aren’t making a big enough dent in your property taxes, it might be time to sell your investment property.
If you turn a profit on the sale of your investment property after owning it for a year or more, you’ll owe long-term capital gains taxes at a rate of 0%, 15% or 20%, depending on your income and filing status.
Many investors, like yourself, leverage the use of a 1031 Exchange.
5. You are planning to relocate to a new market.
It’s possible to manage a rental property from afar.
Homeowners often have someone on-site to check on the property or visit regularly themselves. This option may not be possible for everyone.
Property management services can be expensive and they might not do as great of a job as you’d hoped. It can also be time-consuming and costly to regularly drive or fly back to the property to maintain it yourself.
As a general rule of thumb, you should sell your rental or investment property any time it’s costing you more than it’s worth or you no longer want the responsibility of managing it. To find out when you should time your house sale, check out our blog post on the “Best and Worst Months to Sell a House.”
Note: This guide is for informational purposes only. Meridian Trust does not make any guarantees about the sufficiency of the content in or linked to from this blog post or that it is compliant with current law. The content within this blog post is not a substitute for legal advice or legal services. You should not rely on this information for any purpose without consulting a licensed lawyer in your area.
Always consult a tax advisor. Meridian Trust does not offer any tax advice.
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