The last year or two has delivered a hot seller’s market in Visalia and in many parts of the country. It may seem like everyone has sold a home or is selling one now. Maybe you’ve thought about selling your investment property. How do you know it’s a good time?
There are always arguments to be made in favor of holding that investment property. The rents you’re earning are increasing, which brings in more cash flow. Add to that the rising appreciation and value of your home – holding the asset is sometimes a better idea.
But, there are also arguments to be made in favor of selling. We’re investigating what those reasons are today.
Sell When Your Investment Home Needs Expensive Maintenance
If your property is older and beginning to show signs of deterioration that you have no interest in renovating, you might want to sell. Maintenance costs are going up and the type of work that an old, run-down home will require is bound to be expensive.
When the maintenance and repairs required on your investment property have become too much to deal with and too expensive, you should sell. If it’s a minor fix that’s needed and you otherwise find your property to be a good investment, make the repairs and move on. However, if the repairs are frequent and the house requires more than you can possibly provide, it is time to sell and put your investment dollars elsewhere.
This is a situation where a 1031 exchange can be especially helpful to buyers who want to let go of one property but also hold onto the equity in that investment. You can sell the older property that you do not want to continue maintaining, and instead of keeping the proceeds of that sale, you can re-invest that money into a newer investment property that needs less maintenance. You’ll also receive higher rents on the home that’s likely to be more attractive to high quality tenants.
Another benefit is that you can defer the taxes you’d pay on the sale of your property. When you don’t want to exit a market but you do want to upgrade what you own, this is the best tool you have in your investment toolbox.
A home with high maintenance needs isn’t necessarily a failing asset. You’ll likely get a good price for it, especially in the hot market we’re currently experiencing. Maybe there’s an HVAC system that will need to be replaced in a couple of years or a main line repair that’s just waiting to be addressed. These are not repairs you want to make on a rental. Someone else (your buyer) will have to take care of them down the road.
The costs for labor, materials, and supplies is rising. If you cannot afford to continue maintaining your investment property, it’s time to sell.
When to Sell Multifamily Investments
Sell your multifamily units when it’s time to upgrade the asset classes you’ve been investing in.
This might mean you sell 20 properties and buy 10 new ones. It’s not a loss; it’s an opportunity to earn higher rents, spend less on maintenance and turnover, and attract high quality tenants who are looking for modern, well-located homes.
When you’re thinking about selling an investment property, you have to know the market. If you’re holding onto a home that no one wants to rent, it’s time to sell. Re-invest the money you earn into properties that people do want to rent.
There’s a lot of new construction coming online. With the demand for good rental housing only growing, there are new neighborhoods, new developments, and plenty of condos, apartment buildings, and HOA neighborhood properties waiting for investors to discover them. These are the homes that a lot of tenants will be wanting in the next year. Set yourself up to acquire them, even if it means letting go of some of those older units and buildings that are no longer serving you.
Sell When the Location is Changing
Neighborhoods change. Perhaps what was once a quiet, residential area is now more commercial or industrial. If your location is no longer able to attract tenants, you need to think about selling the property. Location counts when you’re renting out a home. Tenants won’t want to live in an area that is too busy, not attractive, or unsafe.
Make Sure the Market is Cooperating
It’s not always easy to get the price you’re hoping for when you list your property for sale, so if the real estate market is in a position to give you what you want, it’s a great time to sell. When you have a lot of equity in your property and you’d like to use that money for something else, you shouldn’t hesitate; sell the home and re-invest the funds or use them for whatever purpose you need that cash.
Owners who have seen their homes rise in value are in an excellent position to sell whenever they want to. Don’t wait for the next downturn; sell when there’s money to be made.
Sell When Your Investment Goals Have Changed
Every time you acquire or sell an investment property, it should be aligned with your overall investment goals. Your portfolio should be serving a purpose, and each property within that portfolio plays its own part in getting you closer to your goals.
Perhaps you want to diversify your portfolio and you realize that all of the properties you own are single-family homes. That would be an excellent indication that it’s time to sell at least one of those properties so you can begin to invest your money elsewhere.
When you need some cash to pay for things like college tuition for a child, a down payment on a home you’re planning to live in yourself, travel, or even an unexpected medical bill, selling could be the best way to make yourself stronger financially.
Always start with your investment goals when you’re thinking about selling. You want the sale to make sense in the short term and the long term.
These are some of the things to think about if you want to sell an investment property. We’d be happy to talk through your personal circumstances and provide our best advice about whether selling or holding is best for you. Please contact us at The Equity Group.