When you buy an investment property, you have it at the back of your mind that you will eventually sell it. But despite this fact, knowing the right time to sell your property can be challenging, especially if the investment property is making you money.
Is there a formula for the best time to sell an investment property? If you own a rental that you are thinking of selling, what are the things you need to look at to make that decision? This post will answer your questions.
10 signs it is time to sell your investment property
1. You are losing money on the investment
Losing money is the most straightforward reason to sell an investment property. But even with this sign, Lior Abramovich of Blanked Homes says some investors will hold on to the property, hoping they can make it work. While it is a good idea not to give up an ailing investment, you should know when an investment is a lost cause.
2. The market has reached its growth limit
If the property market in your area has been at a standstill for a long time, it is often in your best interest to sell the investment. That is because when the market eventually starts to move again, it could move downward. Before that happens, you want to quickly get out of the market while the value of your property is high.
3. You can’t afford the needed renovations
Your rental property may need massive renovations to rejuvenate its curb appeal and make it profitable again. If you are willing or can spend more money on the property, your best option could be to sell it. Hopefully, the value of your property will increase before you get to this point.
4. You have met your investment goals
Consider selling the property if you had a target when you bought the property and those targets have been met. For instance, if you plan to sell the rental when its market value appreciates to a certain level, you should stick to the plan. You could only lose all your gains if you take advantage of your position and the market turns.
5. Your local real estate market is hot
If there has been a recent spike in the price of your property because the real estate market in your area is trending upward, it may be time to sell. If you have found yourself in a seller’s market where the value of your investment has grown much faster than you expected, you may want to sell the property.
6. Rent is lagging, but cost is accelerating
The ownership cost for a property only sometimes keeps up with the rental rate for that property. It makes sense to sell the property if it costs you more money to operate the rental, but you cannot offset those increases by raising the rent. Sometimes, it is not the increasing cost but because the cash flow is decreasing, yet the effect is the same.
7. You are tired of being a landlord
It is possible to completely lose interest in being a landlord. If you no longer find joy in finding, buying, renovating, and operating a rental property, keeping up with the demands of managing your investments will take time and effort. You should sell the property if you no longer derive joy from real estate investing.
8. You want to diversify your investments
Too much of your money is held in real estate, and you would like to spread your risks by diversifying your investments. Ideally, you want to have a variety of investments across different asset classes. These should include paper assets vs. physical assets. It should also include a combination of short-term vs. long-term investments, high-risk vs. low-risk assets, and liquid vs. non-liquid investments.
9. You have better investment options
You should always check the opportunity cost of every investment you make. What do you give up by putting your money in real estate? Buying a rental property may have been the best use of your money in the past, but things change. You should sell the property if you have found an investment that promises better returns than real estate.
10. You experienced a significant life event
Some events alter your life to a point where it is no longer possible to hold your investment properties. Maybe you have retired, or your kids have all finished college. You may have health issues that make it necessary to slow down. Perhaps you are moving to another town, traveling to see the world, or are recently divorced.
On its own, any of the above signs is enough reason to sell your investment property. But if you see more than one of them in your life or one of your properties, it is time to sell the investment property.
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