We’ve been told for decades that owning real estate is one of the safest ways to produce investment funds. However, hanging onto a specific property may not be the best option for your overall portfolio. In the famous words of Kenny Rogers, how do you “know when to hold” or “know when to walk away (or know when to run)?”
The answer depends on a number of factors. Our co-owner/broker, Tommy Weclew is an expert in buying and selling investment properties and can guide you through the process. Of course, you should always consult with your financial advisor before making any decisions, but below are a seven factors to consider when deciding:
7 Factors That Will Affect Your Decision to Sell
1.) Your loan term is ending.
Many property owners use interest paid on mortgages as a federal tax deduction. When the term of a loan is ending so is that write off. It may be time to sell and take stock of other real estate opportunities.
2.) You have a greater source of passive income.
Wealth management professionals constantly preach the importance of diversifying your income streams. For example, the Financial Samurai recommends having at least three or four distributed income sources. If your real estate investments comprise more than half your net worth, the safe plan is to sell and rebalance the load.
Every property investment requires a certain amount of cost for upkeep. Whether it’s basic maintenance or necessary improvements, those costs can eat into your overall net income. If you have a portfolio of investments that are providing passive income without the same operating expenses, it may make sense to sell the current property and add your proceeds to that portfolio instead.
3.) Your capitalization rate is too high for your risk comfort.
Although the higher the rate, the higher the risk, within certain parameters, a cap rate isn’t necessarily “good” or “bad.” Consider the ratio of net operating income versus the current value of your property and then consider your tolerance for risk.
The answers help determine if your property achieves your forecasted profits or if your cap rate is too high for your comfort level.
4.) Reallocating funds to a new investment property would offer a higher return.
Would selling your current real estate investment free up funds to buy property in a “hotter” market with a higher rate of return? If a neighborhood is relatively stable or starting to slide on the rent scale, that is a strong indication it’s time to sell, particularly if there is property available in another location with a more attractive overall net income rate.
5.) Future construction or improvement plans would flood the neighborhood housing market.
Not only do the current housing market trends in the area impact net income, any plans for new construction that would increase the supply of comparable housing in your market area can also affect your investment.
New construction could potentially drive down rent rates in this location and offer you a lower investment return. That’s why it’s beneficial to pay attention to outcomes of zoning hearings. If there are approvals for these types of developments, it could be time to put your FOR SALE sign out soon.
6.) Market conditions in the area are strong.
When housing prices are high, many investors will capitalize on the wave and sell. Horror stories abound of real estate investment capitalists snapping up property in 2006 or 2007… only to be forced to sell at heavy losses a few years later.
Economists warn the longer the current bull market persists, the stronger the bear market whiplash may be. If housing prices have been rising in the area where your property is located, now may be a practical time to sell.
7.) Long-term tenants leave
Even with our periodic inspections through The Realty Medics, most major property renovations are better done after a long-term tenant moves out. After the work is complete, the net value could warrant considering a sell, especially if any of the aforementioned considerations apply.
Need Help in Determining Whether to Rent or Sell?
Looking to sell your home? As your full-service turnkey real estate provider, we’re one of the largest investment property management companies within central Florida and can help you sort out your best option.
Tommy Weclew has bought and sold hundreds of millions of dollars of properties. He has access data that allows us to know the trends in our local market before most people, making him your best resource.
Even if your real estate investment is not currently being managed by us, or you have an established relationship with another realtor, we can help you make a smooth transition.
Complete our online form for a free consultation to find out how we can help!