Selling an investment property can be a difficult decision. As an investor, you want your properties to appreciate in value over time. However, there are some situations where selling may make sense financially or fit better with your investment strategy. In this article, we’ll examine when and how to make the decision on whether to sell an investment property.
Consider selling if the property no longer cash flows positively
One key reason to sell an investment property is if it’s no longer generating enough income to cover expenses. Negative cash flow could be due to rising costs like property taxes and insurance or major repairs and maintenance. Or perhaps rents have declined in the area, making it hard to find tenants at rates high enough to cover costs. If a property is cash flow negative month after month, it may make sense to sell it and reinvest the proceeds into a better-performing asset.
Sell if the property requires major unexpected repairs
Investment properties inevitably require some maintenance and repairs. But if a major issue comes up, like a new roof or HVAC system, it may be better to sell rather than sink large sums into repairs. Consider the repair costs relative to the property’s value. If the repairs exceed 10-15% of the property’s value, it may be better to sell.
Consider market conditions and your investment goals
Study your local housing market conditions to determine if now is a good time to sell. Are home prices rising or declining? How does the potential sales price compare to what you paid for the property? Also consider your overall investment goals. For example, selling may make sense if you want to rebalance your portfolio asset allocation.
Weigh the tax implications of selling
Selling an investment property has tax implications you need to consider. There may be capital gains taxes to pay on the property’s appreciated value. You can do a tax gain/loss analysis to estimate proceeds after taxes. There are also tax advantages to keeping investment properties long term, like depreciation write-offs.
Be strategic about the sales process
To get the best price, make minor upgrades to kitchens, flooring, etc before listing the property. Hire a knowledgeable real estate agent familiar with the local market. They can advise you on pricing and negotiation strategies. Also time the sale carefully – selling in peak seasons may yield a higher price.
Deciding whether to sell an investment property depends on several factors – cash flow, repairs required, taxes, market conditions, investment goals, etc. Analyzing these elements carefully can help investors make the right decision.