Because we have a market proven system to sell investment properties that has always been a good portion of our business. This year we have been contacted by an unusually large number of investors who are considering selling their investment property. Some of the investors think the market is nearing a top while others have decided being a landlord isn’t for them. If you are thinking about selling your investment property here are a few questions to ask yourself.
Do you want to be a landlord? I believe successful investors enjoy owning investment properties and they run their investment properties like a business. If you don’t enjoy some of the negative aspects of owning rental properties such as dealing with tenants or having to lease a home then being a real estate investor may not be right for you.
Even if you use a property manager you will inevitably have tenant headaches so think about how you will handle those situations.
If you didn’t own it would you buy it? You’re probably like me and have discovered you are more successful financially when you have an overall plan. How does owning a rental property fit into your plan? What percentage of your net worth will be tied up in the property? In general, renting a single-family home has the least economy of scale and the greatest single point of failure from an investment standpoint. This is something to think about before converting an owner-occupied home to a rental property.
What is your actual Return on Investment? When calculating a ROI many investors will simply compare the difference between the rents collected and the mortgage payment. Often this calculation leaves out weeks of not collecting rent when the home was being leased, management and leasing fees, necessary repairs and make ready costs. When calculating your ROI be sure to include those expenses.
If this is an owner-occupied property where you will lose the benefit of the Homestead Exemption be sure to calculate your payment with a higher property tax payment.
It’s also not likely the recent appreciation will continue forever. If the market returns to normal historical appreciation, would you still want to own the house?
Have the rental rates kept up with the property value? We have seen some tremendous appreciation in home values over the last several years. Many areas have not seen a corresponding increase in rental rates. If you have a tenant vacating your home after a long period you may be surprised that the rental rates may not have increased correspondingly with the property values and the property taxes you will pay.
What else can you do with your money? Owning an investment property can be a great way to build wealth. However, some homes are better than others when it comes to being a profitable investment. Every year you should evaluate all your investments and compare them to other options available that might be more profitable. This is especially true for investors who have built up a large amount of equity in their homes causing the ROI to be low compared to more passive investments.
What expenses are coming up? Are you facing major expenses on the horizon? Those expenses may eat up all your profits very quickly. The upside of holding on to an investment property for a couple more years can easily be lost if you are faced with expensive items to replace.
Are you facing the capital gain tax deadline? If you can still qualify for the capital gains exclusion and don’t plan to hold the property for the long term you should consider the expected appreciation vs. additional taxes you may have to pay. I have already talked with several families who didn’t understand how this tax exclusion worked and wound up missing this deadline.
Do you need to get the home show ready anyway? Perhaps your last tenant has moved out causing damage and you are now faced with an expensive make ready. Since you will need to spend money to make the home show ready if you continue to rent or sell this may be a good time to consider selling. Otherwise, if your plan is to hold the home for another year or two at that time you may be faced with more of the same expenses if your tenant causes damage to the property.
If you're planning to sell in 2022, now is the best time to attend our Free Home Selling Workshops. If you want to attend a workshop, get in touch with us and we will notify you when they are scheduled. As always you can check KopaWorkshop.com to see dates and times of our in-person and online Free Home Selling Workshops. For years home sellers have told me they benefited from attending our events. Sign up at KopaWorkshop.com.
The information on this page may have changed since we first published it. We give great real estate advice, but this page (and the rest of our site) is for informational use only and is no substitute for actual real estate, legal and financial advice. If you’d like to establish a Broker-client relationship, reach out to us and we’ll tell you how we can make it official. Sending us an email or reading this page alone doesn’t mean we represent you.
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