Rental properties are often fantastic sources of income. When you find the right tenants who pay promptly and keep the place in excellent condition, having a rental property can feel perfect. However, there will invariably come the point in time when the rental will no longer serve its purpose, and you may want to sell your rental property altogether.
Here are three typical times when selling your rental likely makes more sense than keeping it.
Sell Your Rental Property When You Can't Find Tenants
This time is perhaps the most obvious. If you have a rental for which you cannot find tenants at a market (or even slightly below market) rent, it's probably a good idea to sell your rental property.
Difficulty finding tenants causes two problems for rentals.
First, if you're having a tough time finding people who want to rent, it doesn't bode well financially. You'll likely have to slash rents to the point where you're losing money, or you'll have to accept less-than-ideal tenants who won't take care of your place very well. Either way, you could find yourself in a lose-lose situation.
Second, the longer it takes to find tenants, the more money you'll spend on your property without any revenue. This point is especially prescient for rental properties without paid off mortgages. If you have to carry a mortgage and have no money coming in, it might be time to consider selling the property. You can always use the cash to get into a more profitable rental later!
Ultimately, if you're struggling to find good, qualified tenants for your rental, that's a pretty good sign that you should consider selling it. Holding on too long may have harmful consequences financially.
If Your Property Has Appreciated Significantly, It May Be Time To Sell
Property values are on the rise. Even in a world currently besieged by COVID-19, property values are still at or near the highest they have ever been. The average home price in June 2020 was $390,500, with the highest median home value in the US being $646,733 in Hawaii. Within the continental US, California has the highest value at $579,332.
If you bought your rental property five or ten years ago (or longer), you might have seen it appreciate by 20% or even more. A home purchased in the Great Recession may have doubled in value by now.
When your property gains a significant amount of equity, it may be time to consider cashing out and putting that equity to better uses.
Suppose you bought a home for $200,000 ten years ago. Now, that same home is worth $400,000. You have $100,000 left on your mortgage, and a large portion of your rental income is going towards that note.
You could wait until you pay the mortgage off to sell. In the meantime, though, you don't have use of that money (or equity). If you sold the home, you could have $300,000 in cash (minus fees and commissions). If you put $40,000 down (20%) ten years ago, that would mean you'd have turned $40k into $300k in ten years - over 7x return!
What other investment could you make that would give you over 700% of your money in ten years? Furthermore, how much more do you think the property will appreciate?
If the property value has risen substantially, it may be time to cash out. You can always buy another rental property at a later time if you'd like!
Consider a Sale for Diversification
Sometimes, through inheritances and life choices, you can wind up in the proverbial, "too many eggs in one basket" scenario. Whether your rental properties are in the same market as your home or all your money is tied up in rentals, you may discover that you want to rebalance your portfolio.
When this happens, you'll probably want to sell your rental property and take the money to invest it elsewhere! Rental properties are fantastic income streams, but it's always a good idea to have a healthy portfolio!
As a corollary, this point also applies when you're thinking of starting a business and need funding. Instead of getting a loan or tapping into some other debt source, you may wish to consider selling your rental to provide you with the funds necessary to make your venture a success.
All too often, people will get personal loans or HELOCs to fund their ventures. The problem with that is that your credit score and home are at risk. You can't always sell your rental immediately to pay your HELOC by the due date, which can cause you financial complications.
Instead, consider selling off your rental property, getting the funds to start your business as cash, and then creating your new company!
There Are Many Good Reasons To Sell Your Rental Property
There are many reasons why you might want to make the sale. The ones listed above are the most common. Some other ones include that you inherited it, you no longer wish to invest in real estate, or the property no longer makes money.
Ultimately, you'll want to sell your rental property when it no longer makes sense for you to have. Life changes constantly. If you have a rental home, you'd be wise to look at its value, the mortgage balance (if you have one), and think about whether it's worth keeping. If it is, your choice is simple. Keep the property and continue to collect those rents!
However, if the rental property no longer makes sense to have, the market is hot right now. Even with the pandemic, property prices are at all-time highs in many markets around the United States. Now is the time to offload your rental property if it no longer works for you!
If you're thinking about selling your home and want to save money on commissions, please consider listing with SimpleShowing. You'll only pay 1% commission when selling, instead of 3% with the big brokerages. Depending on where you live and your home's value, that could result in thousands of extra dollars in your pocket!