As the property owner, you have the power to decide whether to raise the rent or to sell your rental property. Each year, expenses get higher, and you will have to find ways to adapt to keep your finances above the water. If you’ve found that your real estate investments aren’t quite making as much money as you had hoped, you may be thinking of selling them to make them more profitable.
Signs That It’s Time to Sell Your Property
#1 You’re seeing a negative cash flow
Is your real estate investment losing money? The main reason to invest in properties is to generate positive cash flow each month. If it’s negative, you may need to reevaluate your investment. Rising taxes, utilities, insurance fees, and more can significantly impact your investment. If you are spending more than what you’re earning, it might be time to sell your property before its value drops even further.
#2 You can’t afford the maintenance costs
Investing in real estate is exciting — until you realize how much it costs to maintain a rental property. As a landlord, you must ensure that the property meets certain standards of habitability. This means making sure that it is up-to-par with housing codes as well as local and state regulations.
While there are home improvement projects that can be DIY-ed, others will quickly drain your bank account. If you don’t have the funds to keep up with costly repairs and maintenance, selling your rental property may be the answer. This is especially true if you’re dealing with tenants who continually pay rent late. Without your main source of income, it will be difficult to handle the increasing expenses (e.g., taxes, repairs for tenant-related damages).
#3 You’re a remote landlord
Are you managing your rental properties from a distance? Landlord duties are already difficult as they are — you have to screen tenants, deal with repairs, coordinate with vendors, and more. Managing properties remotely adds a layer of difficulty to an already challenging situation. You’ll quickly find that you don’t have the time, energy, and money to maintain the landlord lifestyle from afar.
There is, however, an easy fix to this problem. Hiring a property management company can help ease the burden of long-distance management. You will have a dedicated team of property managers who will handle all of your duties for you so that you don’t have to keep planning trips to and from your rental property each month.
#4 You’re ready for a life change
The landlord lifestyle isn’t for everyone. Perhaps another door has opened and you’re ready to grab the opportunity for a new life. If being a landlord doesn’t fit into the new life that you’ve envisioned for yourself, selling your rental property is the ideal solution.
You don’t have to experience bad tenants, expensive repairs, or tedious tax requirements to want to leave the landlord’s life behind. It’s possible that you simply feel that it is time for something new. Read our blog on selling rental property for profit.
Signs You Should Keep Renting Out the Property
#1 You have positive cash flow
Cash flow isn’t the amount of cash that you earn — it’s what is left after all of the expenses have been covered. Owning a rental property comes with several expenses such as a mortgage, property taxes, landlord insurance, HOA fees, repairs and maintenance, advertising, and many more. If your rental property can survive on its own (meaning you don’t put personal funds into your rental business), that is a sign that you should hold on. Here’re 8 profitable moves to maintain a positive cash flow.
Keep in mind that if you own multiple properties, each of them doesn’t need to have a positive cash flow. For example, you might be doing costly upgrades on one property, but your higher-end properties (the ones that are generating higher profits) will likely be covering for their expenses. Ultimately, what you need to ensure is a positive cash flow for your rental properties as a whole.
#2 The property is in an attractive neighborhood
Rental properties in up-and-coming neighborhoods are in markets where the demand for real estate will only increase in the years to come. This is why it is important to attend city council meetings — it’s where you will find out about upcoming developments that may affect your property’s value.
In this case, consider continuing to rent out your property. You’ll be expecting an increase in rent as the area becomes a more desirable location, anyway.
#3 You have good tenants
Good tenants pay their rent on time, respect their neighbors, obey policies, and take care of the property as if it were their own. If you have good tenants who are long-term tenants, you’ll get to save on the costs of turnover. This means that you will be able to enjoy a steady stream of income, and ultimately, a positive cash flow. If you’re looking for new tenants for your property here is a guide on effective marketing techniques to attract tenants.
Should You Raise the Rent?
When expenses for utilities, taxes, maintenance, and others begin to pile up, you may think that the most logical solution would be to increase the rent. However, that may not be the most ideal step to take.
Many independent landlords are hesitant to raise their rent, especially if they work with small portfolios. Owning and managing multiple rental properties gives you a better chance of mitigating the financial impact of vacant properties, which is one of the common effects of the rent increase.
The topic of rent increase isn’t always welcomed by open arms — not even by the best tenants. If you increase the rent, you risk losing good tenants who have a history of paying rent on time, taking care of the property, and more. At the end of the day, losing good tenants may be more expensive.
In general, you should raise the rent when:
- You’ve made improvements to your real estate investment
- You need to keep up with the real estate market
- The neighborhood is changing into a more desirable one
Other factors such as cost of living, taxes, and maintenance can lead you to raise the rent. In situations where you need to keep your income above the expenses, it would be necessary to increase the rent gradually. Keep in mind that the reasons for increasing the rent should always be communicated clearly to tenants. They should also be given due notice to give them ample time to decide whether or not to renew their lease. You may want to read Luxury Property Care’s complete guide to rent increase.
Owning a rental property, just like other investments, comes with risks. If your property appreciates, and you can maintain the property without incurring a negative cash flow, you should consider holding on to your rental. However, if you’re seeing negative cash flow month after month, and if the maintenance costs become too difficult to handle, it may be best to sell the property instead.
Before you make your decision, consider talking to a professional property manager to see whether there are problem areas that can be fixed. At Luxury Property Care, we provide landlords with the necessary resources to help them maximize their investments. Talk to our property managers today to see how we can help you keep your real estate investment.