Choosing an investment property isn’t really that difficult. Deciding when to sell, on the other hand, is more complicated. There are dozens of good reasons to sell, some of them related to big picture market conditions, while others are more personal.
Let’s go over some of the most common and urgent reasons to unload your investment property.
If a Surplus Is Coming
If you own property in a city where a large amount of new housing is being built, you might want to consider selling well before all those new units hit the market. When they do, they’re sure to dilute the value of your property.
When Property Taxes Are Going Up
When property taxes increase, landlords have to pay them out of their rental income, so either their profits go down, or they’ll increase rents to make up the lost revenue.
You Need to Reset the Depreciation Clock
If you’re an advanced real estate investor, depreciation probably plays a big part in your financial strategy, especially come tax time. What is depreciation? Generally, it’s the cost of buying and improving your rental property, and the IRS lets you distribute those costs across a span of multiple years.
If the Market Is Hot
This one depends on your investment timeline. If you’re in it for the long run, you probably don’t pay much attention to market fluctuations. But if you’re trying to cash out in the next decade, or sooner, that means you probably aren’t interested in sitting out another full market cycle.
A Bigger, Better Opportunity Presents Itself
If you’re looking to turn your present investment into a larger one, a 1031 exchange is a valuable tool. The 1031 essentially lets you trade one property for another, a more valuable one, while temporarily deferring capital gains taxes.