Take a minute and consider how much your investing business has changed over the past twelve months. There is a good chance that you have probably undergone some subtle, and not so subtle, changes in philosophy and direction. It is always better to be a step or two ahead rather than chasing outdated trends and strategies. Such is the case in dealing with an investment property. Not every rental is designed to be held onto forever. There are many cases when selling makes the most sense, even if you are netting a positive cash flow. It may seem outlandish to get rid of a cash producing property, but if it doesn’t fit your long term vision or is more trouble than it is worth it makes sense to sell. Here are five reasons to at least consider selling your investment property.
Liquidity: The real estate market is constantly changing. When makes sense to you today, may not be the same a few months down the road. Every few months you should dive into your portfolio and assess your holdings. What you will find is that some markets are performing better than others and it may make sense to cash out of the property. You never know where a particular real estate market is headed. Trying to time it at the peak is often a recipe for disaster. That being said with a market analysis and experience of a local real estate agent you can get a good idea of just how much you could net from a sale. If the number is more than you thought you should consider cashing out and moving on. Rental demand doesn’t appear to be slowing down any time soon, but you shouldn’t put all your eggs in one basket. If the sales number makes sense you can parlay your capital into other profit generating properties.
Opportunity: It should go without saying, but the goal of an investor is to generate revenue, not simply compile assets. Owning a handful of rental properties sounds great but if they are not making you money they aren’t that strong of an asset. There are times in every investor’s career when they are presented with unexpected opportunities that often need quick capital. If the opportunity is greater than what you have with your rental, it makes sense to sell. You can take the profits, apply them to the new opportunity and generate additional profits. This scenario doesn’t always work out this way, but if you have equity and are willing to take slightly below market value you should be able to find a buyer. Getting rid of a rental may seem difficult, but if the opportunity is too good to pass up it may be a no brainer.
Maintenance Cycle: There is little question that one of the keys to long term wealth is the acquisition of key rental properties. However, not all rental properties are equal. Some properties in certain markets are much more stable and secure than others. What is often overlooked is the cost associated with quality rental ownership. If you want to preserve your asset you need to take care of it. This means staying on top of maintenance and big ticket items. About ten years into ownership you may see a laundry list of these items quickly approaching. Between the furnace, roof, outdated flooring and countertops this number can quickly total tens of thousands of dollars. If you do not have the means, or desire, to dump money into the property you should sell before these items are a necessity. Savvy buyers will factor these into their offers, but you will still end up ahead if you are early enough.
Reduced Cash Flow: The numbers you estimated when you bought the property may not be the same once you take ownership. There are several seemingly hidden costs associated with owning a rental property. Little things like snow removal, lawn care, insurance & tax changes and maintenance can quickly change the bottom line. There is a big difference in a property with $500 cash flow and one with $250. There is an even bigger difference from $250 to zero. Owning for future appreciation is nice, but is often a huge gamble. If the monthly cash flow isn’t what you expected it is time to think about selling. Modest rent increases can only cover so much. Eventually the reduction in cash flow will prompt you to take action.
Time Commitment: From the outside a landlord waits around for the first of the month, sits back and collects rent checks. While this may happen from time to time the reality is that owning a rental is a lot of work. You may not hear from your tenants for weeks then get bombarded with three maintenance requests in a few days. If the property is a few towns over you could spend a few hours a month driving to and from the property, not to mention returning calls and answering texts. At some point the time commitment of the rental becomes more than the value of the property. This is magnified if you are self managing and handling everything, especially if the monthly cash flow isn’t there.
Very few rental properties are designed to be held onto forever. If you are disappointed in the numbers or the market has peaked you should consider selling. Holding onto a diminishing asset will weigh down your portfolio.