3 signs it’s time to sell your investment property

Written on March 22, 2018 by , updated on May 2, 2019

communicationI had to make a tough decision. Was it time to sell my investment property?

As I’m writing this, my condo—and very first real estate investment—just went on the market. I had to say bye to that memory-filled investment to say hello to a new investment: one that is actually profitable. (Who buys a property in a real estate bubble? Me.)

What made me make the decision? How did I choose to say so-long to my always-rented property? The process started when I became a writer for Landlordology. I realized that while my condo’s always rented, and someone else was making the mortgage payments, the property wasn’t checking all the boxes for a good real estate investment.

What makes a good real estate investment?

While it’s easy to get carried away in the fun of starting a real estate business, it is important to pay close attention to know that your investment is a good one. Sometimes the signs are not so obvious that the property is a bad fit. So, what makes a good investment?

1. Your rental property is cash positive each month.  

The first thing you want to do when choosing a rental property is to determine the potential cash flow. To do this, use sites like Apartment.com, Redfin, WalkScore, and—of course—Cozy, to research the rental price. Now, look at the principal, interest, property tax, and insurance (PITI) per month. Subtract your rental estimate from your PITI. Is there positive cash flow? This is the first factor in a good investment.

2.  It’s in a high-demand rental community.

Location, location, location. We’ve all heard it, and it’s true. Renters flock to areas that are desirable. Look for properties that are walkable, have public transportation, shopping, beach, or are near popular destinations. For example, my rental properties are near Northwestern University with public transit to Chicago, the beach, and shopping. Universities with a high graduate population have great potential for rental properties. While the tenant turnover will be higher than other areas, there is always demand. Last, look at areas that will be hot soon. Certain areas price people out of the market, so renters move to another location that is nearby.

3.  You can easily manage the property.

If you are a Dave Ramsey fan, you know he always says to stay close to your rental properties. This makes managing your rental property easy. However, if your property is not so close, it gets tricky. A good real estate investment is close to where you live, low maintenance, and offers an easy system for managing your property and tenants. For example, let’s say you have a single-family home you rent out that is 10 years old and 10 miles from your home. The property management can be simple. Hire a lawn care service, a maintenance person, and use Cozy for collecting rent online and communicating with your tenants about maintenance requests. Now, if the property is high maintenance or hard to rent—that’s another story.

Related: When to sell your rental property

When should I sell my real estate investment?

While you should think of real estate investments like the stock market (buy and hold), sometimes the signs are there that it’s time to sell and reinvest or get out of the real estate game completely. Whatever makes you happy. Here are the surefire signs that it’s time to sell.

 1. Cash flow is consistently negative.

The No. 1 reason to choose a property to invest in is positive cash flow each month. When it’s negative, it’s time to sell. My first rental property was an accident. We bought a new house and couldn’t sell the old one. Because of this, checking the cap rate and PITI was not part of our “strategy” (read:  there was no strategy) for choosing an investment property. We fell into it, and from that first month, August of 2011, it has had negative cash flow. Negative cash flow is the first sign your rental property may not be meant to be. Consider moving back into it or selling it.

2. You’re a remote landlord.

When I began my landlord journey, I was only a few blocks from one rental property and lived in the other (a three-flat). Managing my property was easy. However, I sold the property I lived in, and now live 35 miles from my other property. I no longer had a relationship with my tenants. Showings were impossible. I felt panicked about maintenance requests. It wasn’t easy. If you’re moving away from your rental property, think about selling it and buying local. The property will be easier to manage, and you’ll have more control over your investment.

3. The cap rate has changed.

A cap rate is the income-expenses/value. The goal is to keep the cap rate between 5% and 10%. Generally, property investors determine the cap rate when choosing an investment property. However, if you are on the fence about whether to keep or sell a rental property, you should revisit this equation. Several changes can occur during the life of ownership that can turn a good cap rate bad. Did property taxes go up? Did the rental market in the area go down? Is maintenance more than expected? Are the utilities higher than you originally thought? Add up your monthly expenses over the year, and subtract that from your annual income from the property. Divide this number by the current value. If the percentage is less than 5%, you may want to consider selling.

Real estate investing can be lucrative, and the buy-and-hold strategy is typically best. However, sometimes you need to take a hard look at your investments and ask yourself, “Does this investment still make sense?” That’s what I did, and in the end, it didn’t make sense for me own my property anymore. Once you let go of a property that isn’t working for you, you can move onto the next property investment!

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11 CommentsLeave a Comment

  • Jane

    I own a rental house free and clear. No morgage. Was inherited. Been renting it for 2 years same renter. Should I sell and pay off all my debts or keep it

    • Sarah Noel Block

      If it were me, I’d keep it. You’re profiting each month and building equity. That’s a win. But, it comes down to what you want. If you don’t want to be a landlord, then sell it and pay off your debts.

  • Chris Guarino

    For the last 5 years, I have rented out a condo I used to live in. after all expenses, I average around a $75/month profit, however, as taxes go up and things come up for maintenance (water heater 7 years old , furnace 12 yrs old, stove very old, fridge very old, etc) I feel like there will certainly be years where I lose money in the future when i have to replace these items. Also, one wonders if the condo market values will go down at some point. I bought the unit in 2008 right before the crash and now it is finally worth around 15% more than i paid for it. Based on this info, is it time to sell in your opinion?

    • Brent Christensen

      Our stories are very similar. I’d love to hear your thoughts are on keeping, selling or 1031ing into another property.

      • Chris Guarino

        Hey,
        I have decided to sell. The market is good right now for condos and I feel like its a good time since some stuff will end up needing to be fixed/replaced in the coming years and I figure that I might as well get out now rather than have to fix things and lose money. I debated trying to increase the rent substantially to generate more income, but, in the end, I didn’t think that was fair to the current tenant and it may just make more sense to sell. It will be nice to to have to worry about this property anymore and just focus on the home I live in and my family. What is your story and what are you deciding to do?

        • Brent Christensen

          I’ve bought my condo high in 2008 moved out in 2012 and rented it out making right about the $75 you mentioned. Its and older building complex and unfortunately for me I’ve already had to drop for a new furnace and AC unit which brings my lifetime income close to $0. The HOA has been increasing and each year it’s more likely the appliances will go out or will need other repairs.
          I’m planning on selling and 1031ing into another property. I like the idea of staying in real estate as another source of income/wealth. Its my first time every doing a 1031 exchange so I’m a little nervous.

  • Thomas

    I am torn. I own a rental house in Austin, TX. A very hot market with no signs of slowing down. I’ve had the same amazing renters for 5 years and are now moving. I couldn’t have asked for better renters. I want to keep the house but we live in Oklahoma over 6 hours away. We make over $500 a month after PITI but could net almost $100,000 in gains if we sold. I know that area is only going to grow over the next few years and don’t want to regret selling it. Any thoughts on how we should approach this?

    • Brandon

      I am in a very similar predicament, with nearly identical income and gain potential, although I only live 20 miles away from the property. I’ve got some debts from other investments that would be nice to clear out with the sale, but letting go of the longterm asset is definitely a difficult decision. I’m curious as to the advice as well!

  • Zeegee

    We bought an investment property almost 5 years ago. The neighborhood is not the best in town but I have not had a problem finding tenants , altough not the best all the time! At this time the property needs some major repairs, like a new roof soon, new AV/heat system, replacing windows and cabinets. Selling it now would probably net us about K15-20 as we don’t have a mortgage on it.
    should we sell it AS IS and try to buy in a better neighborhood or do the repairs on this and then sell or do the repairs and hold onto it? Will we be able to recoup all our repairs costs if we sold it now? Very difficult to make a decision! Hope you can help!

  • Usman Khalid

    Really enjoyed reading this, you have highlighted some very important issues one can face with an investment property. As reading these I did realize Selling a property at the right time is essential. Thank you for the read though

  • Etta

    Time to sell rental and invest sale of apt ? I am retired and on my 70s.
    I have a rental property in a condo/ coop building .
    I rented it out when I moved years ago.
    The maintenance fee is $1000 monthly and has two assessments per year plus insurance.
    My tenant pays $2100 monthly.i clear a rental income from a garage for 250. Monthly.
    I now Live in coop -I have a 350,000 mortgage .maintenance of 2700 ,mortgage 1700 =4400 monthly .
    I understand that if I sell I will need to pay 15-20 % in taxes.
    The rental apt will sell for about $400,000.
    I have a steady income and reduced social security. Is it time to sell to get cash and invest it?

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