Hey there, this is Mike from Mike Buys Houses. In a past video, I made a point about a homeowner who was a new landlord and was thinking about selling their property because it just wasn’t something they were interested in doing once they got into it. Well, I was talking to them again as they were still trying to move on from their house, so we discussed some of the things to consider when actually getting into the process of selling a rental property.
Tax Consequence from Selling a Rental Property
The first thing to consider when selling a rental property is the tax consequences, specifically capital gains on a rental property. For our specific situation, it would actually be short term capital gains because it’s an investment owned less than a year, but in general, most rentals are going to be considered long-term capital gains. You can check out our video on that, which includes some options that you can look into in order to reduce those tax hits.
After the initial tax conversation, we talked about the possibility of the 1031 and how the actual capital gains are calculated.
The main consideration for you is usually going to be, how much are you willing to pay in taxes and what is your plan with the lump sum of money if you do sell your property?
If you’re planning on investing those funds and start earning that passive return, then reach out to me and find out how you can upgrade from being a landlord to the lender so you start earning interest on your investment while still securing yourself with the property that you have owned for years. You can sell your property, remove the daily responsibilities from your life, and still collect on that property! A great option for landlords who are tired of being landlords.
Find Out How to Go From Landlord to Lender! If you want to switch it up and become the lender to reduce that huge lump sum of money, give me a call.
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What are the Repair Costs for Rental Property
The next thing to consider is how much will repairs cost for the property? This is a major consideration because those repairs will determine your strategy to sell the rental or not. Most of the times that a landlord is selling a rental that they have owned for years, the tenants haven’t necessarily treated the home with utmost care, so it normally needs some T.L.C.
Let’s say you are looking to sell to an owner occupant, we might be looking at needing a new kitchen, bathroom, flooring, paint, and some random damage from the tenant. If you’re trying to sell to another landlord, then it is totally up in the air based on the conversations had. It might be possible to pass along those capital expenses and deferred maintenance, but you will likely need to reduce the purchase price. Other landlords will factor these expenses into their offers one way or another, as they know those are the expenses that will need to be paid to turn a good cash flow.
Depending on the level of rehab you have to do for your property, the facts of the situation may dictate which way you want to go with regards to selling the property. You can balance the pros and cons of selling to a landlord or to someone like me based on your situation.
Selling a Rental Demands Open Communication with the Tenants
The final discussion point that we had during our conversation was to ensure proper communication throughout the entire process with their tenants. It is absolutely critical to communicate your intentions with your tenant, assuming you’re selling a tenant occupied property, as they will have some impact on the overall sales process.
They can make things much more difficult for you to achieve your end goals just like they can make things very easy and smooth. Therefore, doing a little bit more of reaching out to communicate plans with them early and often can really save you time in the long run. You can even give them the option to purchase the property too, if that might be of interest to you.
How to Effectively Sell Your Rental Property
To wrap things up, when considering if you want to sell your rental property, you have a few options so you need to decide how you want to sell it.
You can reach out to your tenants to see if they want to purchase the property. If they have enough saved for a down payment and can qualify for a mortgage, then you are set.
If they don’t have those funds or mortgage options, you can upgrade from being a landlord to becoming a lender and provide them with a loan on the property. As I mentioned above, reach out to me and I will explain how to set up something like this and why it might be an option for you.
There’s no fee to call, so let’s talk through what you are looking to do. If you have a plan in mind, give me some of the details and we can get right to it!
You can always list your property with a realtor, pay those commissions and suffer the closing costs and all of those normal transaction fees, but good realtors should help make sure you are hands off with the process. It is just a very big process!
Otherwise, you can sell to someone like me where I can buy the property on terms, taking you from landlord to lender. We have an owner with a duplex in Buck’s County and he loves not having to deal with tenants or repairs any more while still cashing those checks each month! Passive revenue keeps everyone happy.
If you want some passive revenue for yourself without the responsibility, give me a call!