You’ve probably heard of the basic assumption “buy and never sell.” This is very much relevant in real estate, especially in today’s market where land is scarce and rent and property prices are increasing. Most real estate investors would advise you to own property for as long as you can. But sometimes, circumstances do not allow you to – you just have to make the sale.
Why are you considering selling your investment property?
There may be several reasons for you to consider selling your investment property. If you are at a point in your life where you need a quick flow of cash, selling your property may be ideal. Liquidating an asset like property is convenient for such a purpose and is often carried out with little to no trouble.
Another reason is that you are just not getting a positive cash flow and cannot pay the property off. Maybe you are not generating enough income from having high vacancy rates or are located in a bad neighborhood – which in turn is causing you to lose money. A property which has one or more of these factors is simply not worth hanging onto, especially if there is no positive cash flow.
Finally, your reason may be purely personal. You may feel like being a landlord is too much trouble, or that managing the property in general is a burden, then you may feel like you need to sell.
When should you be selling your investment property?
Knowing when to sell your property is an important part of being a successful real estate investor. Before anything, you need to look into the city or area you are selling in. What’s the real estate market like there? What are the current market trends? Is it a buyer’s market or a seller’s market? How different is your city/area from the rest of the nation? How much are properties appreciating or depreciating? These are only a few of the questions you need to answer when selling your investment property.
Related: 8 Real Estate Market Trends in 2016
Conducting market research will significantly help you in learning the right time to sell. Let’s take San Francisco for instance. San Francisco real estate market is among the hottest nationwide. It is a seller’s market. Land is scarce. Property sales prices are appreciating. So is it a good time to sell in San Francisco? It is.
Researching market conditions is crucial due to the vast differences which exist in real estate markets across the US. San Francisco real estate market is very different from Houston, San Diego, Denver, and Chicago markets. In markets like San Francisco, San Antonio, Seattle, among others, now is a good time to sell because property prices are up. In other markets which are less defined and less predictable, you may want to hold off the sale.
So when exactly should you be selling your investment property? You guessed it – it depends. Many real estate investors would advise you not to sell your property unless, for example, your cap rate is lower than your free-risk rate or unless your depreciation benefit expires, or until you start collecting social security or retirement benefits. These investors focus on the math of selling – something you should be doing as well. I know, math wasn’t my favorite subject either. But numbers are the indicators to help you decide when you should be selling your investment property.
Related: 6 Things to Know About Real Estate Appreciation
A Few Extra Advice/Tips To Help With Selling Your Investment Property
When you do sell your property, price your property right. Know your home value and set a price range. Do not over or under price. Consult a real estate agent to help you better value and price your property. You’ll want to get professional advice on selling your investment property in general. Whether it’s a mentor, other real estate investors, or an agent, make sure to use your connections to your advantage when considering the sale.
Additionally, if you have tenants currently occupying the property, make sure to know when they are leaving so you do not end up displacing them, and to avoid any sort of lawsuit or legal hassle.
Moreover, make sure to keep your property looking nice for prospect buyers. This means tending to any renovations required including the interior, exterior and curb appeal. Nothing helps you sell like a well kept, well priced property!
Related: 6 Rental Renovation Tips to Know Before Spending Any Money
Finally, remember that there is an opportunity cost associated with selling your property. Make sure that making the sale is the absolute best decision because you indeed you shouldn’t sell unless you absolutely need to.
In the end, deciding whether or not (and when) you should be selling your investment property is a decision you have to prudently make. You need, again, to be well informed about the local market, and to have an overall outlook on future trends to foresee where your neighborhood or city is headed towards and if you should stay for the journey or sell and move on.