Many become real estate investors under the assumption that they will only be buying more and more investment properties and never be selling any of them. At least, that seems the appropriate way to diversify one’s real estate investment portfolio fast and efficiently. However, that’s not the reality of the real estate investing business. Sometimes real estate investors end up having a rental property for sale, and that’s not necessarily a bad thing. On the contrary, a rental property for sale might even turn into the key to growth in real estate.
When buying a new income property, a real estate investor believes to be purchasing the best investment property with the highest potential regarding the return on investment – in terms of rental income, cash flow, CoC return, and cap rate. Nonetheless, circumstances change, and it might become best to sell a certain investment property. So, as a real estate investor, how do you know you have at your hands a rental property for sale?
1. Constant negative cash flow and no prospects for a change in the short term
The clearest sign to indicate you have a rental property for sale is if that investment property has been generating you negative cash flow for a while and you don’t see that changing any time soon. Positive cash flow should be one of the guiding principles of anyone involved in real estate investing because that’s the way to make money in this business. There are certain tricks to find and retain positive cash flow investment properties. However, if for whatever reason you end up with an income property which takes money from your pocket rather than make money for you, your best real estate investment strategy is to get rid of it. And the sooner the better, to avoid further losses.
Related: How to Deal with Negative Cash Flow Properties
2. Too much of a burden
Even the best real estate investors make mistakes, and that’s how they learn to become even better investors in the future. Sometimes you end up buying a luxury rental or a multi family property or any other kind of real estate property because the investment property analysis shows you that it will bring you positive cash flow. That’s all great, but after all, a rental property calculator cannot output how much time and effort your income property will require from you: in the form of maintenance, repairs, dealing with tenants, etc. So, if you find yourself in a situation where owning and managing an income property is causing so much stress that the rental income and the cash flow are not worth it, you know you have a rental property for sale.
3. A lot of real estate appreciation
Another case in which you might end up with a rental property for sale is if you realize that your investment property has undergone significant real estate appreciation since you bought. Maybe you just struck an excellent deal a few years back and have now made a ton of money from your real estate investment. If the future in your real estate market does not look so bright though, it is best to sell your property when it is at the top of its market value.
4. Too little real estate appreciation
Alternatively, you might realize you have a rental property for sale if your investment property has generated too little appreciation over the years. Maybe it looked like a great investment idea back when you bought it, with high promises for appreciation, but for whatever reasons, these promises never materialized. In this case, it might be best to rid yourself of this income property with poor long term gain prospects and instead purchase another one in a real estate market which is expected to grow and improve in the near to mid term future.
5. An opportunity arises: It’s a seller’s market
Even if you have an investment property which makes money for you, it is possible to encounter such an attractive opportunity to sell it that you might suddenly end up with a rental property for sale. Real estate markets are dynamic. A buyer’s market might gradually (or suddenly) develop into a seller’s market. Let’s say the economy blossoms in your location, and everyone starts looking forward to moving there and buying a home. The demand for the limited number of available real estate properties may become so strong that all of a sudden you can easily make tens of thousands of dollars just by selling your income property. Then you can use the available cash to buy another property in a location with high demand for rentals – traditional or Airbnb.
Related: Is it a Buyer’s Market or Seller’s Market?
6. Major maintenance is due
All real estate properties – even the best ones – age and need some massive repairs from time to time. If that’s what’s ahead of you and your current income property, it might actually be better to sell it rather than to go through the tiring and expensive process of maintaining it. But you should be careful to calculate exactly how much you will need to spend on repairs and fixes and how much you can sell the property for. Putting your rental property for sale should not be just a way to run away from the work required to fix it up; it should be a rational investment decision which makes sense financially.
7. You need the cash to grow
The final and arguably one of the most important reasons to decide to sell your income property is to use the cash from the sale to grow your real estate investment portfolio and start making more money from real estate investing. Having the cash from a rental property for sale all at once will actually put you in the possession of some serious cash capital which you can use in a variety of ways. For example, you could buy another investment property of a similar value in another market where you will be able to charge more rent and undergo more appreciation in the long term. Moreover, you could use the cash to make the down payment for a bigger, more luxurious rental property which will bring you more profit. Alternatively, you could use the cash to finance the down payments for two or even three new investment properties, which is a straightforward way to diversify your real estate investment portfolio. Thus, offering your rental property for sale is a very smart choice when it will help you grow as a real estate investor.
Related: How to Get Rich in Real Estate: 4 Different Cycles
When a real estate investor purchases an investment property, their first thought is not to sell it one day. However, sometimes situations arise which give you no choice but to offer your rental property for sale. There is nothing bad in this as long as you do it in order to expand your real estate business as one of the ways to make more money in real estate.