When Should You
Sell
Your Rental Property?
by: Dave
Schneider
During the last twenty
years of teaching investors about the benefits of investing
in real estate it still amazes me how often I’m asked when
is the best time to sell rental property?
My answer is simple…..It depends.
What does it depends on, you ask? It depends on the reason the
investor bought the rental in the first place.
Here are my thoughts about when you should sell.
If your goal of buying rental property were to provide you with
income, I would tell you that you should NEVER SELL. Why would
you ever sell an asset that somebody else is paying for (your
renters) and when it becomes paid will provide an income for
the rest of your life.
Well, here are the reasons that most people would sell.
Reason number 1:
They are old and sick and tired of the hassles of dealing with
the tenants and the toilets. All they want is a nice income so
they can do the things they want.
If that’s what they want, they don’t need to sell. You see, once
the property is paid for, they should have enough income from
the property to hire someone or a management company to deal
with the tenants and the toilets. Now they can sit home and just
collect the checks.
The other way you can approach the problem of dealing with
tenants is to be smart about it, set up a system when you buy
the property so that the management becomes an automatic process
that anyone can do.
To do this you need to have step–by-step policies and procedures
for all aspects of managing rental property. All you have to do
is to take the time up front to think about all aspects of
management and lay out the steps that need to be done. Once you
done this, you could hire personal assistant for a few dollars
an hour to follow the steps you have laid out.
If you don’t want to do this work, there is a great system that
is set up to make property management automatic and that anyone
can do. It’s called The Complete Property Management System and
Manual and you can get it at LandlordTools.com. The cost of the
complete system is less than $400.00 and all the steps,
policies, procedures and forms are included in the system.
Reason number 2:
The second reason that people want to sell is to get the money
to buy something else (car, boat, house, another rental, etc.).
Again, if that’s what you want, I still don’t see any reason to
sell. Why? Because if you have enough equity in the property,
you could borrow against the equity to buy the things you want.
One of the things that I like to do is set up an equity line of
credit with a bank on properties that no longer have loans and
mortgages on them. Most lenders will set up an equity line of
credit to loan 60-70% of the value of the property. You don’t
have to pay any interest on the credit line unless you decide to
borrow the money and you can borrow at anytime by simply writing
a check against your credit line. The best thing about this is
that whenever I need large amounts of money, I write a check. I
never worry about how am I going to pay the loan back because
the rent that I receive from the property will be used to pay
back the loan.
What if you goal of selling is to buy another (perhaps larger)
rental property? Don’t sell. Borrow against your current
properties. Besides, think about this, the most expensive part
about real estate is buying (because of the time your spend
and the financing costs) and selling (because of the
commissions, closing costs and taxes you must pay). You
would be better off using your properties that you already have
to buy more properties.
There is, of course, an exception to the idea of never selling.
If you think the property will have little or no value in the
future or it’s in an area where you no longer want to own, go
ahead and sell.
