Should I hold on to my Rental Property?
While eventually you may consider selling your rental property, timing is one of the most important factors to consider. Selling your home too soon can be a bad decision if the tenants are reliable and you have low upkeeping & maintenance costs. If you haven't been forced to decide whether or not to sell a rental property, it's probably still a profitable and desirable investment. Let's look at some of the most compelling reasons to keep a rental property and examine the long-term rewards.
Cash Flow
With responsible tenants, rental property owners can keep benefiting from monthly passive cash flow that can allow them to invest in additional investments.
Landlords can also take advantage of annualized tax benefits and future property appreciations. Refinancing to a lower mortgage rate can also boost profits and cover shortages.
Long Term Appreciation
The housing market, as well as the health of the property's mortgage, will eventually determine a property's selling price, and the housing market keeps growing. Rent prices have risen as a result, resulting in higher returns and additional cash flow for rental property owners in recent years. This can result in long-term gains, particularly for individuals who rent their property for a price that fully covers the mortgage payment and running expenses.
Avoiding Losses Arising from Poor Market
It may not be the most profitable moment to sell if the real estate market is in terrible shape. One of the most significant advantages of owning a rental property is the inflation protection it gives. During periods of high inflation, rental properties are a highly valued asset and investment, and they often appreciate in value. Because housing and real estate are a 24/7 industry, renting throughout any economic downturn is a good way to generate cash flow. While managing the property during bad market conditions may be difficult, selling during this period could result in a significant loss of possible profits and gain.
Sell or Keep Rental Property Analysis
To sum this up a rental property needs to generate positive profits from the investment of purchasing and maintaining the property. Having a quick formula to evaluate its financial performance is helpful. To learn a property’s profitability, investors use a cap rate calculation which is calculated by dividing its net operating income by its purchase price. The net operating income is the property’s gross rental income minus the property expenses. Such expenses may include insurance fees, maintenance costs, property taxes and management costs.
NOI (NET OPERATING INCOME) / PURCHASE PRICE = CAP RATE
EXAMPLE: You purchase a rental property for $300,000. Your gross annual rental income is $34,000 with $10,000 in annual expenses which creates a net operating income of $24,000. You take the $24,000 and divide it by your initial purchase of $300,000 and you end up with a cap rate of 8% for your investment.
The property’s performance is measured by its cap rate. The higher the cap rate, the healthier the property is performing. Remember that the cap rate will fluctuate based on current market conditions and the property’s needs. Purchasing at a low cost and increasing its rents over time can increase your cap rate. Location can also cause the cap rate to vary, but if the cap rate is lower than normal for the area, it’s a good indicator that it may be time to sell for investors interested to maximize their investment.
ERJ Developments Specializes in Rental Properties
Knowing how to properly calculate a property’s financial performance and identifying the good traits of a healthy stress-free rental will help you determine whether it is time to sell or continue holding a rental property.
Whether you own a property that is underperforming, has a high maintenance or mortgage upkeep, or you simply just wish to move on to something different, it’s natural to ask yourself “Should I sell my rental property?”
When deciding whether to sell or keep the rental property, having a simple choice for selling that does not require an excessive amount of time, stress, or energy is beneficial. ERJ Developments can assist you in selling your rental property through a streamlined process that ensures your property is sold fast without an overwhelming amount of time. ERJ Development specialists have the knowledge and expertise to deal with everything from tenant issues to maintenance needs.
