Real Estate professionals have strong opinions about when and how to sell your rental property, but the decision is different for everyone.
Owning an investment property is rewarding but can be all-consuming at times, so it’s important to know when to cash in and sell your property. Accomplished professionals in the industry have strong opinions about when and how to sell your investment property, but the decision looks different for everyone.
Before you put up that For Sale sign on your property, make sure you take into account advice from trusted experts and real-life data to make sure you have the best information available.
To help you decide when the time is right for you to sell your investment property and exactly how to do it, we are going to break it down for you. In this article, we are going to cover:
PLUS we have expert insight from an authority in the real estate industry, Shaun, the owner of We Buy Houses Denver, has a couple of nuggets you don’t want to miss.
Choosing to sell your rental house or investment property is a personal decision. It will depend on many factors including your lifestyle, finances, and long term goals. No two landlords will come to this decision the same way.
One of the common reasons investors choose to sell a property is to release equity so that they can invest in one or more new properties in an up-and-coming neighborhood or a higher-end property and thus increase yield. A second reason may be in order to change strategies or diversify your portfolio. For example, you might have started with single-family homes but are now ready to dive into the multi-family rental space and start increasing the number of doors you own.
If you’re an established investor, you might also be looking to take advantage of a 1031 exchange and trade up to a different investment property without the headaches. Whether you are doing that or just cashing out on your property to realize gains, make sure the time is right.
There is a lot of debate as to whether you should renovate or update your property before putting it on the market or if you should just sell it as-is.
We talked with a real estate expert based in Denver, CO who stated, “Renovating a house takes a lot of planning and money. It’s not as simple as HGTV makes it out to be. If you’re in-experienced you’ll need a reputable and trusted GC to help you complete the rehab on budget and on time.”
If you decide to renovate, you will most likely be able to sell the property faster and for a significant amount more. Properties that are “move-in ready” make it easy for buyers to imagine themselves in your space.
However, renovations often come with unexpected complications and stresses. Whereas, if you list your rental as-is you will be able to get your property on the market quickly. With the current lack of inventory, even a property sold as-is will likely sell very quickly. The only downside is that you may not make as much profit if your home is outdated or needs significant work.
Once you’ve decided you’re ready to sell your rental property, you have to consider the pros and cons of working with a realtor, selling on your own, or looking for a cash buyer.
Here’s a closer look at each situation:
Working with a realtor is great for busy landlords because they do all the leg work for you. From listing and promoting your property to showing and managing the paperwork and other finer details of the sale.
If you have a great realtor that you trust, they should be able to get you top dollar for your property. If you don’t already have one on speed dial ask around your network for referrals.
The only major con to working with a realtor is that you have to pay a 6% commission. This commission will come directly out of your profit, so it’s important to know your numbers so you can fully understand what you will take home after you pay your realtor fees.
If you’re not sure you want to work with a realtor to sell your property, you can always go the FSBO (For Sale By Owner) route.
For experienced investors, FSBO might make a lot of sense. You get to call the shots including setting the price, controlling marketing efforts, scheduling showings, and everything else.
Selling your own property is much more labor-intensive, but you have a say in everything. If you have a busy lifestyle with multiple properties or a lot going on in your personal life, this might be more than you’d like to take on. It’s important to weigh this before making a decision to sell your property without a realtor involved.
Working with a cash buyer is very straightforward because it takes the least amount of time and effort to get the sale done. You also aren’t held to any timetable to get the sale done when you’re dealing with cash because you’re not waiting on financing.
With that said, there are cons to going to the cash route as well. If you are entertaining a cash offer, usually cash buyers will try to negotiate a lower sale price. If you have some flexibility in your price, this isn’t always a bad option.
A 1031 exchange is an IRS code that allows you to avoid having to pay capital gains tax when you sell a rental property if you meet certain criteria. In order to do this, you must purchase another ‘like-kind’ property of equal or greater value than the one you sold within 180 days.
The property that you buy must be identified within 45 days of the sale of your original property. This means that although you have 6 months to close on the property, you only have a month and a half to find the new property to take advantage of this.
The biggest pro of using a 1031 exchange is that you avoid capital gains tax and can reinvest the entirety of your funds into a new rental property.
Although this is convenient and saves you money, you have a very limited timeframe to get a 1031 deal done. If you don’t have a new property in mind before you start the sale, you might run out of time and miss out.
There is no real estate expert with a crystal ball who can predict the exact right time for a landlord to sell their property. The decision comes with a variety to options and you may choose different avenues each time you buy and sell throughout your real estate career.
Keep your eye on the data in the market and make sure you tap into the knowledge of people you trust in the real estate space before you put your property on the market.