Deciding when to sell a rental property is not always straightforward. A property that has increased substantially in value may still generate reliable rental income, while a property that looks good on paper may require more time or money than you want to continue investing.
There is also no single sign that means it is automatically time to sell. Your rental's financial performance, local real estate market, upcoming expenses, and your long-term goals can all factor into the decision.
If you are weighing whether to sell or continue renting your property, here are some signs that may help you decide.
Signs It May Be Time to Sell Your Rental Property
Several factors can signal that it may be time to sell a rental property. Consider the property's financial performance, condition, market conditions, and your long-term goals as you weigh your options.
1. Your property has appreciated significantly
If your rental property is worth considerably more than when you purchased it, selling may give you an opportunity to realize some of that appreciation.
Start by estimating the property's current market value and comparing it with what you paid, the amount you still owe, and the potential costs associated with selling. A higher property value alone does not necessarily mean it is time to sell. Consider what you could potentially gain by selling against the income and future appreciation you could give up by no longer owning the property.
2. Your rental property is no longer generating the desired income
Subtract all of your property-related expenses (mortgage payment, maintenance fees, etc.) from your total rental income. If you’re putting in more money than you’re getting back, it may be time to sell. But before you do, see if you can tweak the numbers to increase your rental profit.
Compare your rental rate to similar properties in your area. If you list with Apartments.com, you have free access to a rent comparables report, a valuable instrument to can reveal whether similar properties in your area are charging higher rental rates, If that's the case, consider raising your rent at the next leasing opportunity. If, however, the property consistently falls short of your financial goals even after you have considered your options, selling may be worth exploring.
3. Major expenses are on the horizon
A roof replacement, new HVAC system, plumbing work, or other major expense can significantly affect the cost of owning a rental property.
An upcoming repair does not necessarily mean you should sell. Consider the age and condition of the property, estimated repair costs, available reserves, current equity, and the property's expected future income.
If several major components are approaching replacement at the same time, the cost of continuing to own the property could become an important part of your sell-or-hold decision.
4. Local market conditions favor selling
Changes in your local real estate market may create an opportunity to sell, particularly if property values have risen or buyer demand is strong.
Try to look beyond the potential sale price. Consider how much equity you have accumulated, how your rental is performing, and whether selling aligns with your longer-term investment plans.
Market conditions can change, and trying to identify the absolute peak of a market can be difficult. Rather than basing your decision on market conditions alone, consider them alongside the property's overall performance and your financial goals.
5. Managing the property no longer fits your goals
Priorities often change over time. Perhaps managing tenants and taking late-night maintenance calls no longer suits your lifestyle.
Selling is not your only option, however. Hiring a property manager may allow you to turn over the reigns, reducing your day-to-day responsibilities.
Compare the cost of professional management with the income you receive from the property. If the numbers still work and you want to retain the investment, outsourcing some responsibilities could provide an alternative to selling.
6. Your professional or personal priorities have changed
Sometimes the decision to sell has less to do with the property and more to do with what you want to accomplish next.
You may want to purchase another investment property, reduce debt, prepare for retirement, diversify your investments, or free up money for another financial priority.
Consider how the rental fits into your broader financial plans. A profitable property may still be worth selling if the equity could better support another goal. On the other hand, keeping a rental that provides consistent income may be more valuable to you than accessing the equity today.
What to Consider Before Selling a Rental Property
If you have decided to sell, take a closer look at the numbers before making a final decision.
Consider:
- Your equity: Estimate the property's market value and subtract the amount you still owe on it.
- Current cash flow: Review how much income the property generates after operating expenses.
- Upcoming expenses: Factor in major repairs or replacements that may be needed in the next several years.
- Selling costs: Real estate commissions, closing costs, repairs, and other expenses can reduce the amount you receive from the sale.
- Future income: Consider the rental income you would give up by selling the property.
- Tax implications: Selling a rental property can have tax consequences, including potential capital gains and tax treatment related to depreciation. Consider consulting a qualified tax professional before selling.
- Your plans for the proceeds: Think about what you intend to do with the money and how that option compares with continuing to own the rental.
Looking at the complete financial picture can help you determine whether selling supports your goals or whether holding onto the property may still make sense.
To Sell or Not to Sell: It's Up to You
The decision does not have to come down to whether your rental property is simply "good" or "bad." A property can be profitable and still no longer fit your goals. Likewise, one expensive repair or a temporary increase in expenses may not be enough reason to sell an otherwise successful rental.
Before deciding, compare what you stand to gain from selling with what you could gain by continuing to own the property. Review the property's cash flow, equity, condition, future expenses, market conditions, and role in your long-term financial plans.
If the benefits of selling outweigh what you expect to gain by keeping the property, it may be time to move on. If the rental continues to provide income and supports your goals, holding onto it may be the better choice.
There is no universal right time to sell a rental property. The right time is when the financial circumstances, condition of the property, and your own goals make selling the better option.
Keeping Ownership? Manage Your Rental With Apartments.com
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Originally published on July 27, 2020, and has been updated.
