How Do You Know When To Sell A Rental Property?

You invested in real estate to make money, but now you’re wondering if you should keep it. Whether life changed or you just wonder if now is the right time to get out and make a decent profit, you must consider many decisions and circumstances before selling.

If you’re wondering if now is the right time to sell or if you should wait, read this guide to learn more about the decision-making process and what goes into it.

Reasons To Sell A Rental Property

You could have hundreds of reasons to sell a rental property, but here are the most common reasons people sell.

1. You’re Done With Real Estate Investing
Whether you’ve been a real estate investor for a few months or many years, there always comes a time when you’re just done. Maybe it wasn’t what you expected, it’s too much work, or it’s just run its course.

There's nothing wrong with throwing in the towel and calling it quits, as long as you do it right.

2. The Property’s Value Increased
If you notice properties in the area selling for much more than you bought for, you may wonder if you should sell. Appreciation happens naturally, but you can speed it along by making improvements to the home too.

Whether it’s time to sell when the property appreciates depends on your goals. Are you saving for retirement or a shorter-term goal? If you invested for retirement, you might want to hold onto the home a little longer unless you’re sure the capital gains will be worth it.

The key is timing the sale right, which we discuss below. If you sell during a year you have a high income, you could increase your tax liability significantly and walk away with less money in your pocket than you thought.

3. It’s Hard to Keep Occupied
Owning a rental property means you also have to keep the home occupied with tenants. It’s not an easy task, and some areas that were once ‘hot rental markets’ may fizzle out over time.

If you can’t keep the home occupied, you may consider cutting your losses and trying to sell for a profit so you can invest your money elsewhere.

4. You Want to Invest Elsewhere
If another investment has struck your fancy, you may want to pull money from your real estate investment and invest in something else. If the new investment goes well, you may want to sell your property to use the money to further your new investment.

If you invest the money in another real estate investment, you may get away with a Like-Kind Exchange, which means you don’t get hit for taxes on the property since you use the money to invest in another home. But, if you invest in anything else, you’ll pay the taxes on your capital gains, so time it accordingly.

5. It’s Too Hard to Keep Up With
Handling a rental property is hard work. You are the landlord, which means you’re responsible for every little thing that goes wrong with the home. You're also responsible for handling payments, defaults, and lease contracts.

It’s a lot of work. While you can hire a property management company, that costs money, which eats at your profits. If you can’t keep up with all that’s involved, you may decide to sell and invest your money somewhere else. 

Circumstances To Consider Before Selling

If you decide to sell, you have a few considerations to make.

The Tax Liability
If you sell a rental property, you’ll owe taxes on the capital gains. Unlike a primary residence, you don’t get the capital gains exclusions for living in the property. You pay taxes on every dollar you gain.

You can time the sale to minimize your liability, though. First, decide if you’re done investing in real estate. If not, consider a Like-Kind Exchange (1031 Exchange) or at least see if you’re eligible. Consult your tax professional and accountant to determine your eligibility.

If you are done with real estate investing, look at the tax implications. If you owned the home for less than one year, you’d pay short-term capital gains taxes. This means you’ll pay taxes at your current tax rate, and if the capital gains bump you up to the next tax level, you’ll pay even more.

If you owned the home for over a year, you’d pay long-term capital gains taxes, which vary between 10% - 20%, with the average investor paying 10% of their capital gains in taxes.

Tenants
If you have tenants in your rental property when you decide to sell, you’ll need to choose how you’ll sell. Here are a few options.

• Wait until the lease expires - If you have an active lease, you can wait until it expires, then fix up the home and list it. If you choose this option, you can market the home to any buyer, not just investors. The downside is you have to wait to sell until the lease expires. If you have a long time left on the lease, you may not make as large of a profit as you anticipated if the market changes. 
• Pay the tenant to leave - If you want to break the lease early, you may be able to convince your tenant by paying him/her. How much you pay depends on the circumstances. You may go back and forth a bit with the tenant before you reach an agreement. You may pay to help him/her move, cover the difference between the new rent and your rent for the remainder of the lease, or come up with another agreement.
• Sell with an active lease - A final option is to sell with an active lease on the property. Otherwise known as a turnkey property, you sell the home to another investor who takes over the landlord duties and earns cash flow from day one. If you sell with an active lease, consider using Roofstock Marketplace, a top platform that helps real estate investors buy and sell properties. 

Selling A Rental Property With Tenants

If you’ve decided to sell your rental property with tenants, you’ll need to target a specific audience - other real estate investors.

You can sell your home with tenants the traditional way, with a real estate agent, but it may cost you more money and take a lot more time. It will also require more legwork from you than if you used a platform like Roofstock Marketplace.

How Roofstock Marketplace Works 
Roofstock Marketplace is a platform for investors buying and selling property.  You can sell investment properties with or without tenants, but most sellers sell their property with tenants. 

Roofstock makes the process simple with these steps.
1. Provide the Property Details
To start the process, submit your property details and great photos of your property to Roofstock. Their professionals will evaluate the information provided and come up with a professional valuation.

You can use the valuation they provide or set your own listing price, but having their input may help you sell the home faster. There’s no fee for any of the steps thus far. You can check out Roofstock and what they suggest for your property and decide how to proceed.

2. Roofstock Certifies the Property
Next, Roofstock does the legwork to sell your property. This is the real bread and butter of the process. They do everything ahead of time, so buyers know exactly what they are getting. This results in a faster sale and closing because buyers are so informed.

The Roofstock certification process includes an inspection, title report, and financial analysis of the property to ensure it’s a good investment. Roofstock discloses all relevant information so buyers can determine if it’s right for them.

3. Roofstock Publishes Your Listing
This is when the exciting stuff happens. Your listing is published, and you get to see it live. Buyers will have access to plenty of information about the property, including its features, size, rental income, gross yield, cash flow, annual return, and more.

The robust amount of information provided to buyers helps them make faster decisions, giving you the chance to sell your home faster. When you first publish your listing, Roofstock will list it in its Open House listings which puts it in the spotlight for 24 hours after the listing. 

You have 24 hours to respond to any offers provided during that time and can potentially sell your home that fast.

4. Take Offers
If your home doesn’t sell during the Open House, it remains listed on Roofstock for its hundreds of thousands of viewers to see. Just like when you sell a home in person, you can accept, negotiate or decline offers. Everything goes through the Roofstock platform, and Roofstock has your back throughout the entire process.

5. Close on the Sale
Once you sign a contract, you can start the closing process. The buyer must secure financing (unless they’re paying cash), and Roofstock will prepare the documents to close the loan. While you still own the home (up until the closing day), you continue to collect rent from your tenants.

Once you close on the property, the homeownership changes hands, as does the landlord’s responsibilities. After closing day, the buyer takes over the property, manages it, and collects the monthly rent.

Why Use Roofstock Marketplace To Sell Your Rental Property

If you’ve decided it’s time to sell your rental property, here are a few reasons you may want to use Roofstock Marketplace.

You’ll Target the Right Audience
Using a real estate agent may feel like the right choice since they sell houses for a living, but they may not have the right audience. Roofstock Marketplace has an audience of just investors. They aren’t looking for a home to live in, but instead, a home they can buy and rent out to tenants or a house that already has tenants.

Why waste time with another platform or a real estate agent when you can get the right audience with Roofstock?

You’ll Save Money
Selling a home costs a lot of money. Not only do you have to cover the prorated real estate taxes and homeowner’s association fees, but you also have to cover the commission to sell the home, transfer taxes, and any other seller fees.

Standard real estate agents charge 6% of the sales price or $6,000 for every $100,000 in sales price. Roofstock charges just 3% of the sales price or $3,000 for every $100,000 in sales price. 

Not only do you save money, but you get a lot more for your money with Roofstock than you do a real estate agent. Roofstock does all the due diligence so you can sell your home faster to buyers who are interested in investment properties.

You Don’t Have to Do Much Work
Roofstock does everything for you. Once you provide the home’s details and pictures, the rest is done for you. Roofstock prepares all the information and documents to give buyers the information they need to make a decision.

Your only job is to respond to offers and eventually accept an offer and sell your home if you get the offer you want.

The Bottom Line

Everyone sells their rental properties at some point, but knowing when the time is right is essential. Think about your financial goals - did you obtain them with the investment property, and are you ready to liquidate it?

Maybe you found out owning rental property isn’t suitable for you, or you need to liquidate the property for other reasons. Whatever the case may be, timing the sale right, having the proper support, and providing buyers with the correct information is the key to selling your property fast and at the price you want.

Image Sourced from Pixabay