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Without a doubt, we’re in the seller’s real estate market right now. For several reasons, some brought on by the COVID 19 pandemic, there is strong buyer demand for homes coupled with a significant shortage of supply which has driven prices way up. As you can imagine, many investors and landlords are asking if now is the time to sell.
Well, that’s a loaded question, but the short answer is it can be. There are many factors to consider when selling rental property. It’s essential to look at all the elements to ensure you’re making the best financial decision and the best decision for your lifestyle. Only then will you be able to answer the question more definitively. Here are some factors to consider when you’re thinking of selling rental property in this pandemic:
- Losing an Income Stream
- Good Quality Tenants
- Government Intervention
- Surrounding Area
- Personal Life and Circumstances
Losing an Income Stream
The primary benefit of selling your rental in this market is to cash out on the massive appreciation gains realized over the pandemic. The average selling price of homes in the United States has never been higher than it is now. If you have multiple properties or other income streams, selling your rental could be a smart move depending on the equity you’ve built up in the property.
On the other hand, if you rely on your rental property as a primary source of income, selling it can be a scary thought with the uncertainty of replacing that income. Of course, it would be nice to cash in on any equity you’ve built up through the rapid rise in property values. But it may be irresponsible to sell that income stream without a plan to replace it.
Another factor to consider with this seller’s market is the difficulty of reinvesting your profits into a different rental property. According to rental property investment trends, investors are having a tough time finding properties in which to invest. In addition, most properties are receiving multiple offers, which is driving purchasing prices up, cutting into the potential profits of would-be investors.
Good Quality Tenants
Having tenants that consistently pay rent on time and take care of your property is key to having a profitable rental business. If you’ve had tenants like that in place for a while or are consistently finding reliable tenants, it’s safe to say that you have a secure income for your rental property. In this case, the decision to sell might not sound as appealing when you’re giving up consistent income from the property.
If you haven’t benefited from high-quality, reliable tenants, then selling might make more sense. However, the stress and burden of dealing with tenants who are late with their rent payments (or worse, don’t pay at all) are enough to make any investor question keeping the property. The eviction process is long and tedious, and the loss of rental income coupled with the cost of turnover could make the property not advantageous to own anymore.
Government Intervention
If the COVID pandemic has taught us anything, it’s that the government plays a significant role in the housing market. As a result, investors and landlords need to pay attention to what the government is doing because it can significantly impact their businesses.
With the COVID 19 regulations the government enacted, landlords can’t evict tenants from their properties, even if they fail to pay rent. The government passed these regulations to help struggling Americans through the pandemic, which is necessary but needs consideration when deciding to sell your rental property. Some states have even planned to extend these policies past their current deadlines to further protect tenants who the pandemic has financially impacted.
These policies will eventually come to an end, and tenants will have to pay their missed rent payments or face eviction, but it’s not clear how long it will be until that happens. As an investor or landlord, this could play a significant role in the decision to sell your rental property based on your current tenant situation.
Surrounding Area
Location is probably the single most crucial component of a successful rental property. What is happening in the surrounding area will impact the value of your property and the potential pool of tenants more than anything else. Therefore, as a landlord or investor, it’s crucial to evaluate whether there is an upward or downward trend around the area of your rental.
If there is an upward trend in your area, you’ll notice people are buying houses and investing money into fixing them up. You’ll also see businesses moving into the area to open shop. New companies will not only drive the value of your rental property up (and increase your monthly rental rate) but will also expand your pool of potential tenants as more people look to move into the area. This is the ideal situation for a rental property and may justify keeping it instead of selling.
However, if there is a downward trend in your area, you’ll notice the opposite. People won’t be investing in the neighborhoods around your rental, and businesses will be closing. As a result, there won’t be many people relocating to your area, and demand for rental properties will decrease, taking your rental rates down with it. In this situation, it may be best to sell and cut your losses before things get worse.
Personal Life and Circumstances
Aside from all the market and financial factors, it’s essential to consider your personal circumstances when selling your rental property. The world has changed a lot since the pandemic began, and being an investor or landlord may not be what you want anymore, and that’s okay! An investment property is a lot of work (if you’re managing it yourself), and it hasn’t become any easier with COVID. If it feels right to sell the property and take your funds into another venture, then you should.
But if the thought of selling your rental property doesn’t feel right and you no longer want to be a landlord, selling isn’t the only option. Instead, consider hiring a property management company that will manage every aspect of your rental investment for you. A property management company can take your rental and turn it into a genuinely passive income source, one that can fit into any lifestyle or circumstance.
Final Thoughts
There are many details to consider when you’re thinking of selling rental property, and COVID complicates it even more. However, your answer should become more apparent if you do your market research and financial due diligence.
If you consider each point above when making your decision and decide to sell, odds are you’ll make some great money from the rapid appreciation of your property. Conversely, if you choose to hold onto your property because it’s a steady income stream for you and want to continue to benefit from the cash flow, then you’ll be in a great financial situation as well. It’s important to remember that there is no correct answer to this question. There is only an answer that best fits your situation and needs.
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