Last Updated on May 8, 2023 by asifa
Investing in single-family rental property brings various advantages. Its promise of property appreciation in the long term, steady income stream and reduced taxable income with business expenses along with depreciation are so attractive to investors. Investment properties are different from stock shares because they can’t be unloaded in just a few clicks. But with the right guide on how to sell investment properties, selling your rental property will be a breeze.
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How To Have a Smooth Sailing Rental Property Sale
Seasoned real estate investors know that owning real estate property is a great investment, until your taxes spike by more than $2000 per year. That’s when you know that it’s time to sell your investment property. Knowing when is the best time to sell your rental property is a bit challenging. But with the right timing, pulling off a smooth rental property sale is possible.
Below are a few pointers:
1. Consider living in your rental property first before selling it. Not everyone wants to use the 1031 exchange just to parlay profits into a similar kind of property. One option you can do is to move into your rental home before selling it. Living in your rental home for at least 2 years, you can pass IRS “ownership and use” tests. This means you have to:
- own the home for at least 2 years (for ownership test)
- live in the property as your primary residence for 2 years out of the 5 years (to pass “use test”)
Passing the tests means being eligible to waive capital gains taxes for as much as $250,000 if you are filing single or about $500,000 if filing jointly. However, if your rental property is an investment that doesn’t yield much ROI, then unloading it now might be your best move to cut your losses.
2. Using good tenants as a selling point. It is worth mentioning that some investors prefer having tenants upon buying compared to an empty property. When marketing the property to potential investors, don’t leave out any info that investors will want to know. Be proactive and provide them with the important details such as:
- How much is the monthly rent?
- Does the tenant pay for the utilities?
- How many months has the tenant been renting your property?
- Do they pay consistently on time?
- When will the lease expire?
- Do they take good care of the property?
- Are there any licenses, permits or huurwaarborg in place along with the rent?
Keeping your tenants happy and cooperative when you are in the process of selling rental property in California may require some creativity and incentives. Perhaps, you can offer them discounts on rent or gift cards as long as they keep the property neat during showings.
3. Avoid getting blindsided by hefty capital gains taxes. Selling a house that used to be your primary residence means enjoying a tax-free sale. If single, you can make about $250,000 or if you are married, you will enjoy $500,000 of profit without being taxed as long as you have owned and lived in the property for 2 years out of the past 5 years.
You will only enjoy a lower rate of 15% (if single) for long term capital gains tax if you owned the property for more than a year, or 20% for joint filers who are earning between $78,750 and $488,850 or 20% for filers that have taxable income of more than $488, 851.
The Proper Way of Selling Investment Property
There are a lot of ways you can sell your investment property and if you have been in the business long enough, you may already have a system in place. But if you are a newbie and want to learn how to sell investment properties for the first time, here are a few important steps to help you out:
Make necessary enhancements.
When selling an investment property, making a few enhancements will help you get a better deal. You will be surprised at how these timely upgrades in amenities can help sell your property faster compared to your competitors who are selling properties as-is. Potential buyers will be drawn to these upgrades and give you a better offer.
Proper pricing is the key.
It can be a bit complicated to price a property and sell it. Underpricing or overpricing is not the best way to go about it. One way to approach this is to look at market trends. How much do your competitors are selling their properties? How will you justify the overall price? Take a look at the competition and consider listing your property slightly less. This will help create a demand in the market and increase competition. In the end, you might end up having a bidding war with potential buyers.
Hire the right experts.
Hiring an agent or realtor is crucial to the entire selling process. While their services will probably cost you about 6% of the total sales price, hiring them is worth the cost. If you want a stress-free selling experience, hiring reliable experts is worth the price. They will help mitigate any headaches that come with selling an investment property and will make your life easier. You can also log online and type in “how to sell my rental property” on Google’s search box.
Market the property to generate exposure.
If more people are aware that you are selling your investment property, it will attract more potential buyers. This will even be more effective if you hire experts to get the word out but you should also do whatever you can to market your property. Talking about it within your network, posting signs around the neighbourhood, hosting open houses and buying ads in the newspaper–all of which play important roles in generating more exposure.
Listen to experts’ advice.
Experts are not just there to help spread the word about your property and process the sale. If you decide to work with an agent or realtor, be sure to listen to their suggestions on the sale of residential rental property, how to stage your home and anything they suggest to help you get a better deal. A property that is properly staged will sell like hotcakes.
Entertain buyers and negotiate.
When you market your property, you will normally receive offers from various buyers. You can listen to their offers but it’s not advisable to jump on the first offer unless it’s what you are truly looking for. Today’s market is competitive and as a seller, you can use that to your advantage. Entertain potential buyers but be sure to follow health protocols when allowing people to enter the property.
Ready To Close the Deal?
When selling your investment property, be sure to review your options and talk to your real estate agent so they can facilitate a smoother sales process. You should also take note of existing tenants who will be affected during the sales process.
It’s never an easy decision to sell investment properties, especially if they are cash flowing. But whatever your reasons for selling your investment property, seek the advice of experts. Not planning exposes you to big risks and you may end up losing a big percentage of your profit.
By taking note of these pointers above, you can sell your property with ease. You can also check out our blog for additional resources.