A great deal of excitement attends to the purchase of investment-grade real estate. However, the reality is that the timing of a decision to sell may be just as important. The prospect of rising property values in the Temecula area, combined with continued low interest rates, raises the question of re-aligning one’s portfolio in a more significant way. That’s because there are buyers out there that can finance purchases with greater ease than in recent years. Lending requirements have becomes less restrictive and interest rates are still quite low.
Just about any real estate investor can relate a story or two about, 1) selling prematurely, and 2) holding on too long. At least in the present real estate market, there is some flexibility if one wishes to sell. It may be time to take some profits on properties that can finally be sold at a profit after years of depressed valuations. It may also be time to find willing buyers for under performing properties. A seller’s market doesn’t last forever.
Here are some points and questions you should ask yourself before you come to a decision of selling your rental property:
Where are the property’s major systems in their life cycles? For example, will a roof replacement be required in the foreseeable future? Is that furnace still in good shape? Have taxes, insurance, and utilities all risen enough to sour the investment? At the same time, are the prospects for continued appreciation in value good enough to counter these negatives? For example, if you expect a $150,000 property to rise twenty-percent in value, that thirty grand will erase a whole lot of negatives about the property. It’s important to evaluate any looming expenses you might face if you decide to hold on to your rental property. If the costs outweigh the benefits, it’s time to sell.
This raises the overall question of trends that may affect a particular property. Are rents increasing in a given area? Or, is the neighborhood changing in such a way that the prospect for future increases in value is just not what it used to be? What are the prospects for filling future vacancies? Are the prospects for tenant relations good or not?
Deciding to Sell
At some level, selling rental real estate to cut your losses is little different than having the discipline to do so in the stock market. Sometimes, hoping for a turnaround becomes an exercise in futility. “Cutting one’s losses” may be far better than going down with a sinking ship. The BIG question — would you buy this property today? Of course, if your answer is a resounding no, the train may already have left the station. No one else may line up to buy it at this point either.
On the flip side, properties that have generated positive cash flow and appreciated in value are often held too long. The owner gets greedy in wanting to squeeze every last dollar out of the property. Then, a downturn comes along, and it’s too late.
Of course, lesser properties are often retained long enough to change the type of taxes to those on lower, long-term capital gains. This one factor alone may turn the decision on a particular property into a “hold.”
Plans and Goals
Ultimately, the establishment of clear and concise long-term and short-term goals will stifle emotional, impulsive decisions. Having an overall plan is vital, otherwise you’re going to end up looking at tea leaves or a crystal ball. Objective analysis completed well in advance is the antidote to haphazard decision-making. Consistent, astute decisions about profit-taking and cutting losses will translate into long-term success. The rewards offered over the long haul by investment real estate are well-known. It’s worth all the disciplined analysis to come out on top on a regular basis.
If you still have doubts over selling your rental property in the Temecula area, contact us today. We’d be happy to discuss your options and highlight some costs vs benefits. If you are looking to sell your rental property, be sure to read our free home seller’s eBook: