When Should Investors Sell Their Investment Properties?

For people with a sentimental streak, losing any of their valuables is one lonely thought. However, it’s one reality that’s bound to happen in any business and investment properties when you’re confronted with fortuitous events. That’s unless, of course, you have made corrective measures at the right time.

You can hold on to your investment properties for so long as you can if you feel it’s still worth it. However, if you ever change your mind, homebuyers such as leavethekey.com are just a phone call away.

Compelling Reasons to Sell Your Investment Properties

1. Personal Reasons

Flourishing business and steady flow of income are the things any business persons are hoping for. However, there are things that happen in the background that can compel you to let go of your investment properties such as:

• Major life changes – you may be needing to liquidate some of your assets due to an addition or death of family members, accidents causing significant injury, losing your job, or relocation.
• Remote management – the location of the investment property can sometimes compromise your ability to manage it the best way possible. There can also be a point where monotony can wear you out that visiting the premises regularly and earning the same amount of money isn’t as exciting as they were before.
• Retirement – there will come a time that you’ll have to retire soon, and you’ll look forward to just relax and reap the fruits of your hard work through the years. Managing investment properties don’t qualify as a relaxing task, so there’s no better way to do than to sell them.

2. Operations Issues

Even though real estates like investment homes are considered as passive income, they still entail taking care of some stuff to ensure a steady flow of revenue. When there are issues that can affect your cash flow, you may be compelled to take some drastic actions which can be as far as disposing of them.

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• Cost of maintenance is no longer practical – for a small-time business person with limited cash on hand, you may not afford costly repairs of some parts of your building. Unless it translates to increased monthly rentals that you can charge your tenants, it might seem more practical to sell it.
• Loss of long-term tenants – if you’ve been restraining yourself from selling your property because you have long-term tenants that have been providing you a steady revenue, now is the right time to push through with it. It’s also an excellent opportunity to make significant improvements to increase the property’s value and fetch a good selling price.

3. Investment Options

These may get in the way of how you perceive the current investments in your portfolio and may drive you to consider liquidating some of your properties.

• Other viable investments – In your endless quest for sources of more earning potential, you’ll realize that there are so many options out there. Each can be more promising than others. If you find one that you feel can be more profitable, it may be a go-signal for you to let go of your current one. However, know that there’s no assurance that your next venture will be a success as nothing is set in stone when it comes to investment. Proceed at your own risk.
• Not so good ROI and cap rate – to calculate return on investments, simply divide the net return on investment over the cost of investment, then multiply by 100%. For real estate, a good ROI rate would be at least 10%, but 15% and up is ideal. The only difference between ROI and cap rate is that the latter doesn’t consider mortgage payments in the calculation.
• A property is more than 50% of the total portfolio – bear in mind that it’s not automatically advisable to dispose of your property if this is the case, especially if it’s the only property you have. However, if you have any properties, your biggest one should be the first to go if you need to liquidate for whatever reason. Remember the investment mantra “don’t put all your eggs in one basket.”

4. Other Factors

Other factors that can affect your decision to sell can go beyond what’s visible to the naked eye. It fact, some issues can be found on your financial statements.

• Full depreciation of building – when your property has been fully depreciated in the books, such as the case of inherited homes, this may have a crucial impact on the tax you have to pay. Since you can no longer use depreciation as deductible expenses from your profit and loss statement, the net taxable profit increases despite still having the same revenue figures.
• Taking advantage of Capital Gains Tax – $250,000 (or $500,00 for a married couple) can be deducted from your gross income resulting from sales of real estate property when computing for your CGT. This will be applicable if you’ve declared your investment property as your principal residence for at least two years out of the 5-year period before selling it.

Parting Words

Investing in real estate and other investment properties may come with unlimited earning potential. However, it can also be a source of headache in terms of keeping their ownership and operations afloat.

When the going gets tough, just know that you have the option to sell your property. Just be sure to know you’re doing it for the right purpose and the right timing.

Author Bio

Ella Macie is a real estate agent who helps home buyers and sellers in her state. Ella represents her clients throughout the entire buying and selling process, and ensure that they can make the most out of their investments. During her leisure, Ella spends time contributing real estate articles online.