Selling an income property is a difficult decision. Hanging on to that ongoing cash seems like the obvious choice. But, even if a property is cash flow positive, it may be time to sell under certain conditions.
Here are three signs it's time to sell your income property.
You No Longer Have the Time or Desire
Have you been managing your income property (or properties) yourself? Property management requires time, energy, and skill. If you’re lacking in any of these areas, it might be time to sell the income property.
Of course, you could consider hiring a property manager to handle the day-to-day operations of the property, including collecting rent, arranging maintenance, and renewing leases. Many income property owners choose to go this route when they can’t manage the property on their own. Hiring a property manager allows you to keep the cash flow, appreciation and tax benefits of the income property without being hands-on.
But if your profit margins are narrow, you may not have enough to cover the property manager’s fees. In that case, it makes more sense to sell the property.
Values in Your Market Are Inflated
Early 2021 finds most of us in hot seller’s markets. It’s a market frenzy with buyers competing fiercely for limited inventory. The high buyer demand and low seller supply have driven property values up at spectacular rates over the past year. Not only is this growth unsustainable, but it has led to over-inflated values in some markets.
Many buyers are willingly paying more than the appraised values for homes, even waiving the appraisal contingency to give their offer an edge over other buyers. This will likely result in a market correction in the next few years where home values dip back down to more manageable prices.
Why not use today’s market conditions to your advantage? Selling now allows you to tap into your equity while it’s high. PropStream even allows you to filter properties by "out-of-state owners," to help you find buyers outside your own market. Then you can find your next investment property, using PropStream’s smart search tools to find markets that are undervalued.
Rent Controls or Eviction Bans Make It Risky to Hold the Property
In areas like San Francisco, income property owners are limited in how much they can increase the rental rates for existing tenants. In some cases, the rent control increase allowances aren’t enough to cover the increasing property tax, maintenance, and insurance costs. This means lower profit margins for income property owners.
Then, with COVID-19 still raging, many states have issued a moratorium on evicting tenants due to nonpayment. In California, for example, Governor Newsom has extended the eviction moratorium through June 30, 2021, with the possibility of extending again as we near this current deadline. Some property owners aren’t willing to risk holding a property when they are prohibited from evicting a tenant for nonpayment.
While most lenders are offering mortgage forbearance to property owners whose income is affected by COVID, this is an added headache that some property owners don’t want to deal with — particularly when property values are so high and inventory is so low.
If the time has come to sell your income property, check out PropStream’s marketing tools for reaching rental property investors that may want to expand their portfolios. And take advantage of our smart search tools to make the most of your next investment once you tap into your current equity.
