People invest in rental properties for countless reasons and each rental property is different. Whether it’s a condominium in a city with numerous tenants or a vacation home that’s rented for only a few months of the year, owning rental property has its fair share of exciting advantages and unique challenges. At some point or another, it’s natural for rental property owners to ask themselves, “Should I sell my rental property?” Especially if the responsibility of maintaining the property has become too cumbersome, it’s a natural part of owning a rental property to one day consider selling it.
In this article, we’ll explore what makes a good rental property, as well as some of the signs that you should sell your property (or consider continuing to hold on to it). By understanding the market and evaluating the property with a focused lens, rental property owners can make sure they’re maximizing their investment.
What Makes a Good Rental Property?
To be able to properly determine if it’s best to sell or keep a rental property, you must first be able to identify how a successful rental property operates. Especially for those that are considering buying a rental property for the first time, there are many qualities of a good rental property that investors should look out for during the search. While the real estate market is constantly fluctuating, a rental property that is operating as it should will usually display a few of these common traits.
Should I Sell my Rental Property?
There are many benefits to investing in rental properties. But regardless of the many perks and the passive income it generates, there will come a time in any rental property owner’s life where they might consider selling the property. Especially in times of economic uncertainty, owning and managing a rental property can become very overwhelming and the return on the investment may not be immediately evident. This is why it’s suggested for rental property owners to keep a solid record of their investments, maintenance costs, and income generation to properly determine if the rental is still a worthwhile expenditure.
The hardest part about contemplating if you should sell or keep a rental property is choosing the right time to list the property on the market. Here are a few signs that it might be time to sell your rental property.
Maintenance Costs are Too High
Whether you’re managing a large apartment building or a small home, maintenance is a natural part of any property owner’s responsibilities. While some maintenance costs may be factored into a tenant’s monthly rent (lobby cleaning, snow shoveling, etc.), the majority of maintenance costs fall on the landlord to cover. Paying for contractors, turnover costs, and expensive repairs can all add up very quickly, and if the state of the property is degrading it’s easy for profits to be lost in the long run. Selling a run-down property is much harder than selling a well-maintained one, so understanding when maintenance costs are getting too high is important for determining when you should sell instead of holding on to the property.
Location Has Worsened
Many investors will purchase rental properties largely due to their location, perhaps within an up-and-coming neighborhood or near a popular vacation locale. Location is a huge part of any real estate transaction, and if you’ve noticed a rental property’s location has worsened it might be time to look elsewhere. Whether it’s crime rate, lack of popularity, or even sudden congestion of other rental properties in the area that are stealing potential profits, a rental property’s location should only serve to benefit the owner. Increases in local rental property regulations are another common reason why rental property owners may choose to sell. For example, some areas of the country have strict regulations on short-term vacation rentals such as Airbnb. Being forced to sell due to increased regulations or a bad location is never a good position to be in, so make sure to always be aware of the state of a property’s surrounding location.
One of the biggest benefits of owning a rental property is the passive income that it can generate, but if the tenants create more issues than the investment is worth it could be a bad sign for the property’s profits and growth. Tenants play a huge role in the success of a rental property, mainly because without tenancy the property is at risk of stagnating on the market and potentially losing value. Whether it’s excessive damage caused by tenants, difficulty filling vacancies, or simply issues with tenants paying their rent, the profit gained from managing difficult tenants will eventually dwindle. If tenants are a huge issue among others, it might be best to consider selling the property.
Property’s Value Has Fluctuated
Anyone looking to make a smart investment in a rental property will understand the importance of getting the most value out of the purchase. A rental property’s value will fluctuate frequently throughout owning it, and evaluating these peaks and valleys is crucial for making an educated choice in owning a rental property. It might be that a rental’s location has suddenly boomed and the property is now valued at a much higher value, allowing the owner to sell the rental property at a much higher price than their initial investment to cash out their equity. It could also be the case that the property has massively depreciated and the owner should sell to avoid tanking their profits. A rental property’s value will always be a reflection of current real estate market trends, location, and specific property needs, and understanding the value of the property is a natural part of owning it.
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Should I Keep my Rental Property?
While it’s natural to eventually sell a rental property, timing is often the most important factor when contemplating if you should sell or keep a rental property. Selling prematurely can be a very bad decision. Especially if a rental property is running successfully with reliable tenants and low upkeep, it might be best to simply leave a good thing alone for the time being. If you haven’t been forced to consider if you should sell a rental property, it’s likely still a lucrative and worthwhile investment. Let’s explore some of the major reasons you should keep a rental property and consider holding out for the long-term benefits.
Long-Term Equity and Profit
The housing market and state of the property’s mortgage are what will ultimately determine a property’s selling price, and the housing market continues to grow. This has caused rent prices to increase, which has led to larger returns and extra cash flow for rental property owners in recent years. This can generate long-term profits, especially for those that rent out their property for a price that fully covers the mortgage payment and operating costs.
If tenants are consistently making their rent payments and operational costs are minimal, rental property owners can benefit from passive cash flow that can help them make additional investments outside of the one rental property. Landlords are also able to rely on annualized tax benefits, potential appreciations, and refinancing options that can help maximize profits and combat occasional shortfalls.
Avoid Losses in Poor Market Conditions
If the real estate market conditions are poor, it might not be the most lucrative time to sell. A huge benefit of owning a rental property is the protection it provides against inflation. Rental properties are an incredibly valuable asset and investment during times of high inflation and typically gain value at this time. Renting during any economically difficult period is a nice form of cash flow because housing and real estate is a 24/7 industry. While there may be challenges in managing the property during times of poor market conditions, selling during this time could potentially result in a hefty loss of potential profits and appreciation.
Sell or Keep Rental Property Calculator
When wondering if it’s the best choice to sell or keep a rental property, it’s helpful to have a general guideline of what you should be looking for in a return on investment. As we’ve covered, a rental property needs to generate positive profits from the investment of purchasing and maintaining the property. Being able to accurately determine the financial performance of the property can be a bit more complicated, so having a general rental property formula for calculating profitability is helpful.
Cap rate is a simple calculation used by rental property investors to learn a property’s profitability. It’s calculated by taking the net operating income, or gross rental income minus property expenses, divided by the property’s purchase price. To get this percentage, landlords need to have a firm understanding of their property’s annual expenses to get an accurate snapshot of a property’s performance. These expenses include everything from property taxes and insurance fees to maintenance and management costs, but all play a huge role in calculating the cap rate of a rental property. Subtract these expenses from the annual income collected from renters to get the net operating income.
Cap Rate = Net Operating Income / Purchase Price
Ex: Susan purchases a rental property for $200,000. The gross annual rental income is $24,000 with $10,000 in annual expenses, creating a net operating income of $14,000. By dividing $14,000 by $200,000, Susan will end up with a cap rate of 7% for her investment.
The higher the cap rate, the better the property is performing. Keep in mind, the cap rate for any property will constantly fluctuate based on the property’s needs and market conditions. Buying a property for a low price and renting it out for a high one or gradually increasing rent prices over time can increase a property’s cap rate. Cap rates will vary largely based on location, but if the cap rate is lower than usual for the area and neighboring competition, it might be time to sell for renters looking to maximize their investment.
180 Homes & Properties Specializes in Selling Rental Properties
Whether your rental property is underperforming or you simply wish to move on to something different, it’s normal to occasionally ask yourself, “Should I sell my rental property?” By knowing how to properly calculate a property’s performance and identify the signs of a successful and care-free rental property, owners can more easily gauge if they should sell or keep a rental property and make the choice that will support their long-term goals.
When it comes to determining if you should sell or keep the rental property, it helps to have a simple option for selling that won’t demand an overwhelming amount of time, stress, and energy. 180 Homes can help sell your rental property with a streamlined process that gets your property sold and owners paid quickly. From handling tenant affairs to taking on maintenance needs, 180 Homes experts have the skills and expertise to help. Learn more about how 180 Homes can help rental property owners sell their property and move on to the next great investment.
In this article, we’ll explore how the eviction moratorium has affected landlords and rental property owners, how the pandemic has reshaped the current real estate market, and some strategies for selling your home during COVID-19. By being adaptable and understanding regulations related to rental investments, people can navigate the current real estate market more efficiently.
How Has the Pandemic Affected the Real Estate Market?
The coronavirus pandemic undoubtedly had a tremendous impact on the real estate market, and the duration of its consequences is hard to determine. The span of COVID’s effects has influenced the entire span of real estate. Stay-at-home orders have resulted in fewer houses on the market, increasing their demand among those looking to buy homes. Interest rates have lowered, so there has been an increase in individuals looking to purchase homes or rental properties as their purchasing power has effectively increased. Due to widespread economic hardship, many renters have been unable to make their monthly rent, which resulted in the CDC imposing a federal eviction moratorium invoked in March of 2020 under the CARES Act.
All things considered, people still need a place to call their home and real estate is a never-ending industry. Homeowners and rental property owners need to adapt to the current market to sell their homes, manage their tenants, and ensure they make educated choices during this hectic period. Let’s explore what the eviction moratorium means for landlords, tenants, and homeowners protected under the CARES Act.
What is an Eviction Moratorium?
The eviction moratorium was imposed by the CDC to assist those that have suffered from financial trauma due to COVID-19, whether it might be a loss of employment or medical bills that have resulted in non-payment of rent. The order doesn’t remove the possibility of late fees or penalties charged by the rental property owner or landlord, nor does the eviction moratorium allow tenants to break their lease outside of nonpayment scenarios. As of July of 2021, the eviction moratorium was extended for parts of the country that are still struggling in their case numbers of COVID-19. The eviction moratorium has very specific requirements for eligibility. It’s not as if any tenant who wishes to skip rent can use it to their advantage. Tenants need to apply to government assistance programs and qualify under the CDC’s requirements.
To qualify for protection, tenants need to:
While meeting these requirements may deem a tenant eligible, there are serious ramifications if application info is falsified. After ensuring they have verified eligibility, tenants must fill out and send the CDC’s declaration form to their landlords or rental property owners to indicate they are covered under the moratorium. Once the tenant has followed all required steps and provided this documentation, renters are unable to evict the tenant due to nonpayment of rent.
What the Eviction Moratorium Means for Landlords and Rental Owners
One of the biggest takeaways from understanding how the eviction moratorium affects landlords is that legal advice is valuable. Each state is different in how its eviction process works, and knowing the correct steps to take as a home or property owner renting their space is crucial for success. Often times, reverting to a local expert could be the best decision if things point towards an eviction. Real estate lawyers are a great resource for understanding what to do if tenants are not paying their rent. Here are some of the biggest points for landlords and rental owners to consider during these unprecedented times.
Evictions Are Still Possible
The eviction moratorium was put in place to assist individuals who have suffered a substantial financial loss that has resulted in failure to pay rent. That being said, tenants are not only evicted due to non-payment of rent. If the tenant needs to be evicted for reasons non stated in the moratorium, such as smoking in a non-smoking building or otherwise violating their lease, an eviction can still be pursued. It’s just important for landlords and property owners to verify all necessary information before moving forward with an eviction toward a potentially covered individual. Additionally, it’s also possible to sue people for rent rather than eviction, which effectively sidesteps the eviction moratorium. Most tenants will want to avoid legal complications and small claims court.
Explore Month-to-Month LeasesSomething that’s become increasingly common during the pandemic has been month-to-month leases. Typically, renters are accustomed to year-long leases but having a month-to-month option can be an appealing selling point for renters as well as an advantage for landlords and property renters. Month-to-month leases allow tenants to have a bit more flexibility in their living situation which can be helpful during a time of economic uncertainty. On the flip side, renters and landlords can replace current tenants easier by not renewing to tenants who have not paid their rent. Non-renewal is not an eviction but still allows landlords to save some of their sunken profits in situations of month-to-month renters not paying rent.
Communication is KeyAs any landlord or rental property owner is well aware, healthy communication is the only way to have an accurate snapshot of your tenants’ needs. Communication is especially important for both renters and tenants during this time. Covered tenants are required to accurately follow the steps of the moratorium and communicate with their landlords of complications paying rent, and landlords should be responsive and document all correspondence. The eviction moratorium is put in place as a temporary halt on evictions, but tenants are still expected to pay their rent in the future. Keeping track of all tenant communication is highly suggested, not only to be able to guide them through the moratorium requirements but also to provide evidence if needed down the line.
Renters Have Assistance, TooFor homeowners choosing to rent out their space, it’s important to understand that housing qualified individuals under the eviction moratorium may result in financial losses and the inability to pay their own mortgages down the line. Similar to the eviction moratorium, the foreclosure moratorium was put in place to help homeowners place a pause on federally-backed mortgages. Despite this ending in August of 2021, if a home or rental property owner applied for forbearance under the Cares Act and is still struggling financially due to pandemic-related hardship, they may be eligible for an extension.
It Might Be Time to SellAs with any major investment, rental properties are all about generating positive cash flow. When it comes to how the eviction moratorium affects landlords, it’s certainly adapted the way they have to view their rental property investments. Especially for those renting out a home, selling your house during COVID-19 could prove to be an intelligent decision due to the current demand within the housing market. If a rental property is not generating revenue from its tenants, sunken profits can be highly anticipated. The eviction moratorium has provided landlords challenges, but the pandemic as a whole has provided insight into the success of a rental property and how much revenue the property is truly bringing in. If landlords are only projected to lose profit, it might be the best time to sell.
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Strategies for Selling a Home or Rental Property During COVID-19
Even with the backdrop of a pandemic extremely present, the real estate world does not stop. In terms of how the eviction moratorium affects landlords and rental property owners, it’s provided an opportunity to move forward, and in many cases sell. Many rental property owners and home sellers are simply waiting for the right time to list their homes and find a buyer. As difficult as it may appear for rental property owners to consider marketing their investment within a pandemic, you can still sell your home in today’s market.
From a buyer’s perspective, now could be seen as a great time to buy. Interest rates have once again dropped to all-time lows and many lenders have loosened some of their most restrictive guidelines. With states and individual companies embracing remote work schedules, buyers have more time than ever to investigate and research their dream home. While COVID-19 is changing the way you may go about it, selling your home or rental property is still very possible. If you’re wondering how to sell your house during COVID-19, here are a few strategies for selling your home during COVID-19 as we continue to fight against the coronavirus and its variants.
Leveraging Technology to Sell Faster
Over the past year, many real estate agents have shifted how they preview and show their listings. To maximize their time, they have started producing property virtual materials for websites or public viewings. Homeowners or rental property owners can easily take videos of their property for agents to share with prospective buyers who can view these materials and quickly decide if they’d like to move forward. The benefits of these virtual materials will outlive the pandemic as an appealing option for non-local buyers to view properties that they might have struggled to view or gain interest in originally. Virtual staging, 3-D tours, and video tools such as FaceTime and Zoom have completely transformed the way buyers can get the first impression of a property, and utilizing these technologies to perform real estate tasks is a smart decision.
Utilize Modern Marketing
In a traditional real estate transaction, initial interest is usually derived from an alert through a multiple listing service (MLS), a database utilized by real estate brokers for information regarding properties for sale. In modern markets, sellers and real estate agents have become more creative. The most common starting point nowadays is social media and online marketing. With an uptick in remote work, there has been a subsequent increase in online traffic. Sellers can use this to their advantage for organic interest in the listing through virtual tours, video tours, sponsored posts, linked websites, etc. This allows buyers to access facts and data regarding a property more often, with many of these online resources also providing alerts to agents, investors, and brokers to see new listings. By adapting to modern marketing techniques, exposure shouldn’t be an issue when selling a home during the coronavirus pandemic.
Showing Your Property (Carefully)
As much as a virtual property tour or dedicated online marketing campaigns can provide valuable property information to potential buyers, nothing can replace the confirmation a buyer receives from physically walking through the property. Especially with the increase of vaccinations, if there is true interest in the property it’s likely that the buyer will want to see it in person. It’s important to note that not all prospective buyers or sellers are vaccinated, so it’s important to still follow county and individual state regulations regarding COVID-19. The bottom line is that if a buyer needs to put eyes on the property, they are still allowed to, so sellers should be aware of local guidelines when selling their home during COVID-19.
Contact 180 Homes for Help Selling Your House or Rental Property During COVID-19
The coronavirus pandemic has caused changes in local real estate practices and procedures that will become the new normal in a few years. While it has altered the way homeowners and landlords have conducted their business, COVID-19 doesn’t have to be a major roadblock in your real estate experience. At 180 Homes, we’re passionate about helping homeowners sell their homes with cash offers that can speed up the entire transaction. Additionally, 180 Homes has valuable insight into selling rental properties for landlords and rental property owners looking to make a change.
The first step of any real estate deal is securing financing. Any grand real estate plans you have are based on your available capital. It will directly impact the market you choose, the purchase price, repair budget and everything about your transaction. One of the most common complaints in the investing business is the inability to find financing. What savvy investors know is that with a little digging there are multiple options available in almost every market. Depending your investing style and goals some of these work better than others. Never let a lack of capital stop you from pursuing a deal. Here are five popular sources of capital for your next deal.