When you purchase a rental property, the hope is that you’ll hold onto it for years, enjoy positive cash flow every month, and eventually sell it after the property has appreciated a considerable amount and you’re finally ready to move some funds and investments around to enjoy retirement.
But, as you’re well aware, it doesn’t always work out this way. Sometimes it’s necessary to unload a rental property prematurely. How do you know when this time arrives? Here are a handful of signs:
Being a landlord can be time-consuming and stressful. When you’re generating a considerable amount of cash flow each month, it’s much easier to endure the negative aspects of being a landlord. You just chalk it up as part of the deal.
But when landlording takes up too much of your time and becomes a heavy burden that causes chronic stress and anxiety, you have to really think twice about what you’re doing. Owning a rental property isn’t all about dollars and cents. Has it been more trouble than it’s worth? If so, this is your signal that it’s time to move on.
When purchasing a rental property, you should always carefully run your numbers and use conservative estimates that leave you a cushion to fall back on should you experience cash flow problems. But what do you do when your property consistently suffers negative cash flow? After a few months, you have to consider the possibility that the property isn’t meant to be a rental. In this case, you either need to move into the home yourself or put it on the market and let someone else invest.
While rental properties aren’t always purchased with the intention of considerable appreciation, you should take a significant increase in valuation as a sign that it’s time to cash in. Selling the property may earn more than a long-term rental strategy. Plus, you can put your capital back into another property that will still allow you to earn monthly income.
You’ve probably heard real estate gurus discuss the riches to be enjoyed from opening yourself up to long-distance property investment and landlording. And while it may sound like a great opportunity to find good deals on real estate, it’s not always a good idea.
“Things go wrong,” real estate expert Brenton Hayden says. “Tenants left unattended and unaccountable may be more likely to push the boundaries, paying rent late or causing damage to the unit. And when renters move out, you’ll be stuck with the process of advertising the property and trying to find another tenant from afar.”
If you’re moving out of town, you need to sell your rental properties. When you purchased them, it was never your intention to landlord remotely. So why would you suddenly pick up this responsibility? Unload your property and reinvest it in local rentals after your move. This will be significantly less stressful and cumbersome.
A rental property is an investment. It’s a place to put your money to work. But in a slow market, you may find that you’re only making a small return. If you can make more money elsewhere – such as in a mutual fund, business venture, or retirement account – then, by all means, you should sell and put the capital there.
“It is one thing to repair a toilet, a sink, even a hot water heater. However, it is another financial situation entirely when it is time to replace a roof, support a crumbling foundation or install drain tile in a wet basement,” one expert explains. “These repairs are expensive and can really affect cash flow. Owning a rental property stops being ‘fun’ when repairs start totaling in the several thousands.”
While you’ll obviously have to take a little bit of a hit when selling a property that needs some work done, you can at least avoid the frustration of having to handle it on your own. Go ahead and get out while you can and use the money to purchase a property that won’t be such a headache.
Real estate investing isn’t for everyone. At the time you purchased the property, you may have been in a financial situation where you had enough capital to put up. But hard times strike, new expenses arise, and lifestyles change. If you need the capital, then pulling out may be the best option for your future.
It’s not wise to sell a rental property that’s cash flowing so that you can buy a new convertible or take a month-long cruise in the Caribbean, but it’s perfectly acceptable to sell when you need the money for college tuition, retirement, medical needs, or debt.
Sometimes the numbers are fine and all of the situational factors seem to be normal, but you just have this gut feeling that it’s time to move on. Ask anyone who’s been in real estate for more than a few years and they’ll tell you that your gut is almost always right.
If you have a gnawing feeling that it’s time to try something else, then follow your heart. That may sound like cheesy advice made for motivational talk, but it’ll help you end up on the right side more times than not.
At Green Residential, we’ve proudly served Houston landlords and homeowners for more than three decades. During this time, we’ve learned a thing or two about what it takes to be successful in the real estate market. We know when to buy, when to hold, and when to sell.
Whether you’re looking for a property management company to alleviate some of the burdens associated with your investment properties or you’re looking to sell your home and avoid paying an outrageous commission, you’ve come to the right place.
Please contact us today to learn more!
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