If you’re like many investment property owners, converting a house into a rental property seems to be one of the most effective ways of ensuring cash flow. After all, it’s simply a question of finding the right tenants who can rent at the right price right now.
Or is it?
Earlier this year, it was predicted by real estate analytics firm ATTOM Data Solutions that residential foreclosures in the US could exceed 500,000 by the end of 2021—an increase of over 200 percent. While that may be a far from reassuring number, what if you’re a rental property owner who isn’t facing property debt? What if you’ve crunched your numbers and found it’s no longer cost effective or even remotely realistic to rent a property? What if you simply don’t need the frustrations and responsibility of answering to your tent’s needs?
When Is It the Right Time to Sell a Rental Property?
If there’s anything 2020 has taught us so far, it’s that much of what we take for granted in life is absolutely unpredictable. Real estate’s a great example. The historic low of foreclosure rates reported in 2019 has given way to some 4.3 million Americans now deferring their mortgages in temporary forbearance as economic uncertainty continues to rise. While that uncertainty can also play a role in your tenant’s ability to afford monthly rent, it’s not necessarily just the climate that can influence your decision to sell rental property. There are other mitigating factors, as well.
Value Appreciation and Property
There’s a general rule of thumb for choosing the right time to sell secondary property: when the market is slow, sell at fair market value—only if the value has appreciated in price.
This isn’t as contradictory as it may seem. Real estate investments follow trends in the market; and if the market is at an ebb, the value of your property is likely going to decline as well. Market forecasts have already begun to predict that market prices could drop by as much as 2.5 percent by October 2021. And as uncertainties about both housing and the national economy remain unresolved, there’s a strong chance that downward trajectory will continue well into 2022.
Negative Monthly Cash Flow
It’s entirely normal to experience peaks and troughs in monthly income from rental property. Particularly in states that are ruled by tenancy at will laws. But if you’re finding that there’s consistently no return on your investment property, it may not be the nature of the rental market. It could be the neighborhood.
It’s generally accepted that your operating costs of a rental should be no greater than 80 percent of the property’s monthly gross operating income. But if you’re operating in a neighborhood where property value has actually flattened (or in some cases decreased), it’s likely that the gross operating income will shrink while operating and maintenance expenses remain the same.
1031 Property Exchanges and Rentals
A 1031 property exchange (or “like kind exchange”) is an IRS clause that allows you to exchange one real property for another of equal or lesser value. While the chief advantage of a 1031 property exchange is to avoid paying capital gains tax (which can sometimes be as much as 25 percent of the value of your property), more and more homeowners are leveraging it as a strategy when evaluating better investment opportunities.
It’s common to find smaller properties for sale in higher income neighborhoods selling for the equivalent of a two family house in neighborhoods with less investable income. Not only are these properties easier and more affordable to maintain, the price advantage for rental properties is significant as a result of higher demand and substantially greater monthly income.
Instant Access to Home Equity
Refinancing rates may be at a historic low right now, but that doesn’t necessarily mean you should take advantage of the opportunity. For one, the average interest rate doesn’t take into consideration your yearly APR; which can sometimes be almost one percent extra. More importantly, your circumstances may call for an outright sale of your rental property.
Emergencies occur. You may be one of the 10.6 percent of Americans claiming unemployment for the month of August 2020. You may find that maintaining two mortgages isn’t as realistic in the current climate as you expected when you purchased your secondary property. Or you may simply want out of the rental market altogether. Whatever your situation, selling to a real estate investor can bring you instant capital dnd instant relief. A legitimate home buying company will evaluate your property, even if it’s in significant need of repair, and make you a fair offer with no obligation to sell—frequently in as little as five to seven business days. It’s quick, it’s reliable, it’s efficient and it has provided millions of Americans a safety net in uncertain times over the past two decades.
We’re not stating that you should necessarily sell your rental property. In fact, if you manage it properly, you can find it will continue to be a highly effective revenue stream which can guide you through the rapids of uncertainty. But sometimes, you can find yourself swimming upstream if you’re not careful. Just make certain you choose the vessel that’s right for you.
Sell to Enlight Homebuyers
If you’ve decided that selling your rental property is the right choice to make, then skip all the hassle and sell to us! We’ll take your rental property off of your hands in as little as seven days! Interested in learning more? Give us a call at 317-333-7011 or fill out the form below and we’ll be in touch soon!