Should You Sell Your Rental Property?

There is little question as to the value of a quality rental property. Just one solid rental can completely change your portfolio for the better. In a perfect world you would own the property until it is paid off and realize 100% cash flow. However, this is often more of a dream than reality.

As is the case with any other investment you need to constantly consider your options. Not every rental is meant to be owned forever. There are plenty of scenarios where it makes sense to sell and move on. If the property is becoming too much work or the returns have shifted, selling is the best thing you can do for your business. Here are five reasons why you may want to consider selling your rental property.

• Appreciation: Trying to time the market at the exact right time is almost impossible. It is human nature to try to squeeze every possible dollar from a property transaction. As a rental property owner, you need to always consider your short- and long-term property goals. As much as you may want to pay the house off and realize extra cash flow, you are probably years away from doing so. If the market has changed in your favor, cashing out and selling may be the best thing you can do. A lot can happen over the course of ten years. Not only can markets change, but your personal tastes and goals can shift as well. You may think that your value will constantly rise, but as we have seen things can change almost overnight. Instead of thinking about where your value may be in fifteen years, you should think about what you would do with profits if you sold. Benefiting from increased appreciation and selling may just be the best thing for your business.
• Management: Self-managing a rental property isn’t easy. There will be long stretches when you may not ever hear from your tenants and then over the course of a weekend be hit with three urgent items. If you ignore, or overlook, these items your tenant relations and property will suffer causing bigger problems down the road. The only way to manage a property is by being active and involved whenever your tenant contacts you. This takes time, focus and energy that can be better served in other areas of your business. The easy solution is to hire a property manager and let them deal with the headaches. This could certainly work, but at a 10% fee per month. Not every property has surplus cash flow they can throw back into the property. Even with a property manager you will still be involved whenever major issues pop up. There are only so many hours in a day and only so many things you can do. Owning rentals has plenty of advantages, but they can also be a burden if you are not careful. If this is the case, selling may get you back to the kind of investing you truly desire.
• Other Opportunities: You never know when or where opportunity will come from. If your rental property is only producing modest returns you don’t need to keep it forever. There will be times in real estate when something truly too good to be true comes along. One way to find capital to fund this can be through a sale of your rental property. Even if there isn’t one big opportunity waiting, the capital from a sale can be reinvested in other areas of your business. There is no question that for the most part a rental property is a long-term play. Any monthly cash flow generated is usually not enough to change your business. However, with a sale you may have enough capital to buy a rehab property and produce some short-term momentum.
• Decreased Cash Flow: If you are not careful it is easy to miscalculate the true cash flow on a rental property. There is much more that goes into the total expense sheet in addition to the mortgage and tax payment. You must account for utilities, maintenance, snow removal, lawn care and more. When all is said and done the expenses can come close to, or even exceed the rent received. You may still be able to benefit from tax write offs, but the monthly cash flow is gone. When it gets to this point you should seriously consider cashing out and moving on.
• Too Much Time: A rental property should be something that requires minimal involvement. Getting calls from tenants complaining about everything from the front door to the windows can be too much to handle. At some point you will eventually tire of this and want to move on. With any business you should always put your time and energy in areas that produce the greatest return. It is probably safe to say that chasing tenants for rent is probably not time well spent. Unless the returns justify the time spent, you need to think if holding onto the property is the best thing you can do.

There is nothing wrong with selling a rental property at the right time. Like any other aspect of your business, it is better to act a little too soon rather than a little too late.