You acquired a duplex, small office building, or stand-alone retail center for investment purposes several years ago. Or, you might have inherited rental or investment property from a grandparent who passed away a while back. Whatever your situation, you own rental property as an investment, and it seems to be providing very good cash flow.
But, you might also be wondering when the time is right to dispose of that rental or commercial property.
Every investor’s situation is different. Selling that asset depends on your particular goals and situation. However, the following might indicate that putting your property on the market could be considered.
- You’re tired of being a landlord. The gains from property ownership can be huge. At the opposite end, however, are the disadvantages. These can include late-night calls concerning broken hot-water heaters, late-pay occupiers, and even just trying to find people to occupy your space. If you believe that the downsides of direct property ownership outweigh the upsides, it may be time to think about selling, or to consider exchanging into a passive real estate investment, via the 1031 exchange process.
- The property is worth much, much more now, than when you bought or inherited it. Depending on how long you’ve owned that asset (and depending on your particular area and the competition), you could find that your small apartment complex or two-tenant retail center has doubled, or tripled, in value. That appreciation, plus any equity you’ve built, over time, could mean selling rental property makes sense.
- Your property is in a seller’s market. If you live in a geographic area in which tenant demand for your particular space is high (with correspondingly low supply), it likely means you’re able to charge higher rents. It also means that other investors or sellers are seeing that upside, and might be interested in buying that property. Sellers’ markets are generally indicated by faster sales, and offers close to, or sometimes above, asking list prices.
- Your cash flow is in negative territory. Even as you’re able to charge higher rents to your tenants, perhaps your costs, such as taxes, utilities, and insurance, have also increased. Or, maybe unexpected maintenance costs are taking huge bites out of your bank account. If you’re finding that your return on investment is continually shrinking, it might be time to get out from under that investment.
- You’re undergoing a major life event. Even if you intended a very long-term hold on that rental property, you might need more liquidity because of a health issue, new addition to the family, or a financial emergency. Selling rental property, and putting the proceeds into something from which you can easier access cash may be the way to go.
Determining when to sell your rental property depends on a variety of factors, ranging from the ones listed above, to your own situation. Before putting the word out that your property is on the market, be sure that selling fits with your investment -- and life -- goals and objectives.