4 Considerations Before Selling a Rental Property

4 Considerations Before Selling a Rental Property
By Jennifer Riner of Zillow

Jumping into real estate investments without proper preparation can lead to regret and financial loss.It’s sometimes best to list poor investment properties on the market and cash-out before unrewarding endeavors worsen. However, the real estate market is continuously fluctuating, which means investors can actually lose money if they don’t time their resale appropriately. Properties may be valued higher or lower than their initial purchase price, after assessingdepreciation, physical modernizations and market standards.

Rather than face potential monetary losses on unwanted investment properties, use these four measures to determine the best time to sell.

1.Competition of Rental Market

Rental building owners, like all property owners, can fall underwater on their mortgages. Negative equity occurs when market value descends and homeownersor investors owe more on their mortgages than their properties are worth. Usually, financially stable landlords remain patient until the market picks up again, especially with cash-flow positive properties.Individuals who have enough in the bank to continue paying their mortgages without regular rental incomes might also consider deferring resale.

After all, local markets can shift rapidly. More than 26 percent of all landowners in Orlando, for example, are currently underwater on their mortgages. At the same time, rental listings in Orlando increased in price by over $100 in the past year, according to Zillow’s Rental Index. With such a strong national and local rental market, investors in many major metros might regain equitable control on their properties in the near future – making postponing selling a practical choice.

2. Business Cash-Flow Trends

The primary purpose of investing in property is to profit. Usually, seasoned investors analyze the cash-flow potential prior to procuring properties. Inexpensive buildings, while easier to acquire,involve time and work to generate enough money to fund mortgages and other investment-related expenses, such as maintenance fees, employee salaries and property management software subscriptions. Landlords losing money well after the first six months, especially by $1,000 or more, should seriously consider cutting their properties loose. With such large expenditures, they won’t breakeven for many years.

3. Property Condition and Estimated Repair Costs

While properties absorbing cash aren’t ideal, they have the potential to turn around – especially in today’s hot rental market with strong tenant competition. Patient owners who make property upgrades can reap profitable income in the future. However, if properties are dilapidated beyond repair or require large-scale improvements that investors can’t fund, then it’s time to list and absorb the loss as a learning experience.

4. Commitment and Availability for Management

Individuals who acquire rental properties as passive investment opportunities assume sole responsibility for their properties. Many landlords fail after erroneously assuming they can run their properties without management experience while maintaining full-time careers.Investors can skirt the responsibility of management by co-investing or looking into buy-and-hold strategieswhere they can provide investment capital without screening tenants, marketing vacant units or hiring contracting professionals. However, lack of control creates risk, which is why extensive due diligence to avoid scams is absolutely necessary.

Personal commitments don’t always translate into fruitful side ventures. Property investors with diverse portfolios might consider selling one to two of their properties, especially when cash-flownegative, as long as the aforementioned specifics don’t hinder resale.