If you're a landlord who is thinking about selling a rental property, there are a few things you should know before you place that "for sale" sign in the yard. Here are the top tips to save both time and money.
Learn the Market. Meet early on with a real estate agent from an agency like RE/MAX INTEGRITY with local experience in the type of building or home you plan to sell. Learn how the market is moving, what cycles it goes through annually, and how you can make your home more appealing. Early research will help you decide how and when to sell the unit for the best price.
Work with the Right Tenant. In addition to educating yourself about the local real estate market's ups and downs, think about the renters you currently have in the home. If you're on good terms with them, you may be able to discuss the potential sale and work out an equitable arrangement that benefits both you and them. If they're not the best of caretakers or they may try to sabotage your sale, you're likely better off to just wait until the lease expires or to find another way to take the home back before listing it.
Know Why You're Selling. Think about why you really want to sell the unit. If you're just burned out on being a landlord, accept that you may lose some money to taxes or get a lower profit in order to get out. If it's this specific house that needs to go, you may find that you can save money by putting the sales money aside for what's known as a "like-kind exchange" to buy another rental unit. If you like the extra income but can't do the legwork involved, ask your real estate agent about property management services instead.
Understand the Taxes. Capital gains taxes for a rental home can be tricky, so it's best to consult with an accountant or experienced tax preparer before selling. Rather than just paying taxes on the profit (selling price minus purchase price) of the home, you will likely have to subtract depreciation from that purchase price and pay tax on the higher profit margin. Some changes to the house may also affect how much you pay in taxes. Being clear about the taxes involved may affect your decision to sell, your timing, and your final sales price.
Whether you decide to sell your rental property now, later, or never, by following these few tips, you can help ensure the best possible—and most profitable—outcome.