How to Tell it’s Time to Sell An Investment Property

How to Tell it’s Time to Sell An Investment Property

With inventory so low, sellers are getting a high return on investment when selling their homes or investment properties.

For many investors, a steady stream of income has been the plan from the start. So, why sell now at all? Good question. 

When determining the right time to sell your rental property, smart investors look at these three factors when making a decision:

1. CASH FLOW

The reason you own a rental is for a stream of income. You want cash flow. 

To determine if you have positive or negative cash flow, use this simple formula to investigate:

• Take one months rent and subtract Principal, Interest, Taxes and Insurance (PITI). 

• If the remaining rent is 5% or more of the total amount, then it is returning good cash flow. Most landlords look to receive between 5-10% return (CAP RATE). 

If you run these numbers and you are break-even or worse, out of pocket, it’s certainly time to look at a sale.

2. RENTAL DEMAND

There are several things that drive rental demand: good schools, proximity to markets and freeways, family communities, safe neighborhoods, condition, and affordability.

A good indicator might be how many calls you get when you run an ad for rent. The more calls you get, the more desirable the rental area. 

If it's a struggle to get qualified tenants that will take care of this asset, it may be time to sell the property.

3. HOW EASY IT IS TO MANAGE

There are rental properties that are super easy to manage: those in a condo complex, those without a lawn or pools, and those that are right around the corner from your home. These types of properties practically take care of themselves. But, what happens when that is not the case?

Being an absentee owner who lives out of the area, you will find yourself depending on a good property management company or a “power team” of vendors you have built to look out for your interests. But, like anything, you are only as good as the team supporting you. 

If the house is going on 15 years or older, you may find yourself pouring more money into maintenance, AC, roofing, and plumbing. These expenses can be costly and cut deeply into your profits. If you find that happening on a regular basis, it may be time to consider selling your investment.

GET ANSWERS

Have an investment property here in California and want to know whether it's the right time to sell? Contact me for more information at Liz@jonesrealtysocal.com or visit us at JonesRealtysocal.com.