Selling Rental Properties in Fort Wayne
Investment Rental Properties:
When It’s Time to Sell
How does one determine when to sell a rental property investment? If you are going to buy rental properties – having a plan in place for the appropriate time for selling rental properties is important.
The usual assumption is that we should own our property forever. Rents will continue to rise due to population growth and inflation, while land is finite. So, why or when should you sell your rental property?
When an investor looks at the bottom line of a rental property and there is no profit, just expenses, it is time to sell. Some investors, however, will hold on to what was once a good investment, sometimes until it depletes all of the profits they may have made in the first five to seven years.
If a property has sentimental value (it was your first purchase, or it was once a family home), some investors may tend to want to hold onto it. Having an emotional attachment to an investment property that is supposed to be generating income is not good. Sometimes an individual will hold this type of property even if it is not profitable. The time does come to consider selling this property.
After a certain number of years, the depreciation tax deduction is used up on a property. Ask your accountant when this depreciation is no longer applicable. When the investment can no longer be depreciated, it’s time to sell that property, and purchase another rental. Consider selling the property and applying the 1031 tax code, so no capital gains tax is imposed on the profits. The code “provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange.” You can roll the profits from one property into a new investment to defer taxes, increase wealth and maintain it.
On average, in the 12th year of property ownership, it is time to sell an investment. The decision to sell will depend on two factors: 1. Is there enough equity in the property to sell? 2. Will the real estate market allow you to sell and obtain a nice profit? Ask a real estate professional for a custom market analysis on the property to see if it’s realistic to expect a nice profit; ask your him or her to perform a cost to income analysis. If the property is losing you money, consider selling your rental property.
Investors buy and sell equities all the time. There is a time to purchase and a time to sell a home as well.