When investing in a rental property, landlords get to enjoy earning passive income through rent-paying tenants. But there is always the thought of selling the property for even more ROI in the back of their minds.
You may be asking, “When should I sell my rental property?” There are a few scenarios and indicators that can push you to sell your rental property.
If you do not have a set timeline for when you want to sell your rental property, then you’ve come to the right place!
We’re covering the indicating factors that can determine whether you should sell your rental property soon or wait a few more years.
When Is the Best Time to Sell My Rental Property?
Is there really a best time to sell your rental property?
Yes! Ideally, real estate investors will wait at least one year after purchasing the property to sell it. This helps them avoid short-term capital gains tax, which can be a doozy depending on the profit you earn from the investment and sale.
If you want to be a savvy real estate investor and avoid capital gains altogether when you sell your rental property, consider opting for a 1031 exchange.
You must also keep an eye on the current real estate market. If there is a shortage of properties for sale with a lot of buyers on the hunt, then it’s a great opportunity for you to sell.
However, if there are more properties for sale than buyers and investors looking to purchase, then it may be best to hold off until the market takes a turn.
Signs It’s Time to Sell Your Rental Property
So, when should you sell your rental property?
If you’re starting to notice issues with your rental property and maintaining your investment is becoming too much, it could be time to sell.
Below are some specific indicators that you should consider selling your rental property.
The Property Isn’t Profitable
There is always a chance of making a bad investment when it comes to real estate – no matter how diligent you are.
If your rental property simply is no longer profitable and you’re losing money on the investment, then it’s time to consider selling and calling it a day.
You can always re-invest in another rental property, maybe in a better location or with a thriving rental market, to regain your losses and try again.
The Market is Changing
The real estate market varies depending on where you are in the country. While one state or city may have an influx of renters looking to sign leases while just a hundred miles away, people are looking to buy homes rather than rent.
If you notice the rental market in your property’s area is changing and it’s getting more difficult to fill vacancies, then it could be time to sell your rental property.
The Cap Rate is 3% or Less
Cap rate is determined by dividing the Net Operating Income by the Property Value. This percentage reveals how profitable your rental property investment is.
If the cap rate is 3% or less, it is considered to be quite low and most likely not worth your time or investment.
However, if you aren’t ready to give up your investment, you could find ways to decrease your expenses and increase the Net Operating Income to increase the cap rate.
The Laws are Changing
Real estate is governed by local, state, and federal laws and regulations – and they change constantly.
Cities are known for increasing property taxes often, and some cities, such as Los Angeles and Pasadena, implement rent control laws that could affect your ROI.
If these changing laws and regulations negatively affect the state of your rental property investment, then it could be a sign that you should consider selling.
The Property Isn’t Appreciating
Many investors dabble in real estate because there is a trend that properties appreciate over time. Unfortunately, this isn’t always the case.
In the rare situations where a property is depreciating, whether it’s due to the area or the maintenance of the property, it could mean losing money for investors.
If you are concerned about the value of your property, you can request an appraiser to evaluate it. This can help you decide whether you should sell it or not.
Remember, even if the property is not appreciating, you could still make a profit from when you first purchased it.
The Property Requires Too Much Maintenance
Some properties just weren’t built to last. If the maintenance and repairs are becoming too much to handle – both physically and for your wallet – it may be a sign that you should sell your rental property.
When tenants constantly make maintenance requests about the property’s structure, appliances, and utilities, it could be time to sell the property and move on.
Can I Sell My Rental Property with Tenants?
Yes, you can sell your rental property with tenants already living there.
In fact, some real estate investors, especially amateurs, search for rental properties with tenants because it is more convenient, and they start earning income right away.
However, you must formally notify your tenants that you are putting the property up for sale. Ensure your tenants that the new owner must abide by the current lease, but once it ends, the owner can do as they wish with the rent price and terms.
Strategize Your Rental Property Portfolio with Lotus Property Services
Building a real estate portfolio takes time, experience, and strategy. Knowing when to acquire and sell real estate in your portfolio is a skill that can only be learned by working with experts and professionals.
That’s where Lotus Property Services comes in!
As the area’s leading property management company, we speak the language of rental property investors and know how to maximize their ROI while successfully building and managing a real estate portfolio.
Are you ready to discuss whether or not you should sell your rental property in the Los Angeles area?
Contact us to speak with a real estate expert to analyze your rental property today!
If you enjoyed this article, you’ll want to read Protect Your Profits: How to Budget for Rental Property Maintenance in Baldwin Park, CA, next!