Single family rental properties can provide a nice income for decades under the right circumstances. However, in some cases it may make sense to sell a property. But how do you know when it’s time to put a rental home on the market?
Here are some common reasons you might choose to part ways with a property:
- It has appreciated to the point that selling makes financial sense.
- You need capital for a bigger or different investment.
- Changes in the market and/or increasing expenses have produced a negative cash flow.
- You want to focus on a different geographic area or market.
- You don’t want to deal with property management obligations any more.
Before You List It…
If your gut or the numbers seem to be telling you it’s time to sell, there are some things to consider before you put the home on the market. For example, selling any property, and in particular one that has renters, involves a significant amount of work — from preparing the property to coordinating showings. Plus, if your renters leave and the property doesn’t sell quickly, you get stuck with the house payment until it does. And while a property with renters in place might be more attractive to an investor, it is less attractive for buyers looking for a home to live in.
Also, there are costs associated with selling a home, and those will take a bite out of the equity you’ve got your eye on. And, is it possible the market conditions will turn around? Successful investing sometimes involves riding out the tough times to get back to profitability.
And don’t forget taxes (capital gains rates if you’ve held longer than one year). If you plan to reinvest in another property, you can do so without paying any tax on the gain by completing a 1031 Exchange. However, if you make a mistake on the timing or process of the Exchange, you’ll have put money into a new property AND owe taxes on the gain from the sale. Finally, if your driver for selling is the property management hassles, there are ways to address those, like hiring a property management company.
Of course, none of this is to say that you shouldn’t sell your property if that’s what you want to do. It’s just a good idea to contemplate all the pros and cons and understand your options before you make your decision.