Deciding whether to sell your rental property or hold is never easy.
But with the economy in strange and uncharted territory, it can be tempting to think that now may be the time.
The truth is harder to answer, but if history is any indication, selling is almost never the right option (especially now).
Still, what should you consider first if you’re thinking about selling, and what are the signs that it is in fact time to sell?
Let’s talk about it.
Note: This post is not financial advice. It’s impossible to predict where the economy will go and even harder to base personal and financial decisions on that information.
In the post below, we’ll talk about reasons you may consider selling largely unrelated to the rumblings of the economy, but we’ll touch on whether 2023 seems to be a good time to sell or not based on the movements of the U.S. economy as well.
However, only you can decide what is best for you and your portfolio.
Should I sell my rental property in 2023?
Later, we’ll talk about some signs you can look for that can help you figure out if it’s time to sell or not.
That could be selling a property for good or simply 1031 exchanging into a better market.
But first, let’s talk for a moment about now on a large scale: the current U.S. real estate market.
Is it a good time to sell now, considering overarching economic factors?
Since the pandemic, the real estate market has not just bounced but roared back, with the U.S. median home price reaching $400,000, higher than it was pre-pandemic:
Another positive note is the low vacancy rate, the lowest it's not only been since pre-pandemic but ever.
Vacancy rates are now at a record low 5.6% according to the U.S. Census:
In addition to this, the homeowner vacancy rate is lower than ever as well, and developers in general are slowing their production rates of new homes.
As a result, many who have been looking for the real estate market to cool to be able to afford a home are being met with very little supply, something essentially opposite of what we’re used to seeing.
What does that mean?
Fewer properties available, not enough to meet demand, with many likely turning to renting as a long-term alternative to an unstable market.
The rise of renting as “in fashion”
One last thing to take note of is the idea of renting as being more in fashion than it’s ever been.
No longer is the white-picket fence a staple of the American dream, with more individuals and families renting than ever before– by far.
And with many developers stepping up the renting experience, it’s becoming increasingly more attractive as a long-term option.
So, should you sell your property now?
All of this considered, it’s impossible to know where the economy will go tomorrow.
Many signs point to an ever-growing rental market that is only going to become larger in the coming decades.
With that said, there are many things to consider when thinking about whether you should sell or not and many factors we didn’t cover here which should contribute to that.
Some of those factors are simply local market-specific or personal and have nothing to do with the economy at-large.
So, let’s switch gears and talk about that now.
When should you sell your rental property?
Besides the obvious economic signs, what are some other reasons it might be time for you specifically to sell your (or a) rental property?
This is a pretty wide topic that includes everything from local market factors to your personal situation and needs/wants.
In fact, some of those reasons run contrary to any market conditions.
With that said, here are some notable reasons it might be time to sell:
Managing a property isn’t what you expected and it’s become too much stress
For some, managing a property is a rude awakening.
If you don’t have the right systems in place, or you happen to have a difficult tenant or two, owning a rental property might start to feel like more trouble than it’s worth.
If the stress gets to be too much, there’s nothing wrong with deciding to sell it for your own well-being.
Alternatively, if your profit margin allows it, you could consider hiring a property manager to take all of that hassle off your hands while still being able to keep the property for a win-win.
A property manager can handle your entire property management needs from rent collection to maintenance and even studying your local market to project rent increases and more.
In other cases, if the work of managing your properties is just a little overwhelming and you need a bit of help, you can consider property management software like DoorLoop.
Like a property manager (but way cheaper), DoorLoop helps save you time and stress by simplifying and streamlining your entire property management efforts from rent collection to maintenance, leasing, and more.
You have an important financial goal and the equity in the property can help you accomplish it
Have your goals changed?
Or maybe you’ve been wanting to do something for some time now and you’ve built up enough equity that selling the property could be the key to allowing you to pull the trigger on it.
In either case, what selling the property could allow you to do may now be worth more than the rental income from the property itself.
You’ve been hit with a major life event that leaves you unable to tend to the property
Sometimes, we’re hit with the unexpected in a way that permanently changes our lives.
When that happens, there’s no shame in admitting that you can no longer invest the time and energy in maintaining a rental property, whether due to the work or because you need to relocate.
No matter the reason, if selling the property would help you facilitate that change and reduce stress, you might decide it’s better to let go rather than hang on.
The property’s local market is down, or another market is up and you want to get in on it (1031 exchange)
This last point is less about outright selling and more about selling your current property to 1031 exchange it for a new one in a better market.
Just because it may be time to sell doesn’t mean you need to step out of rental investing altogether.
If your local market is way down or you believe it will be and is an ideal time to sell, you could identify another local market that is up and 1031 exchange your current property for a property in that new market.
As a result, you can avoid capital gains tax from the sale of the current property and take advantage of a more favorable market now.
Learn more about 1031 exchanges:
- IRS 1031 Exchange Rules for 2022: Everything You Need to Know
- 1031 Exchange Timeline: How the IRS 1031 Exchange Process Works
Should you sell?
There is a ton to consider that may influence your decision to sell or keep your rental property.
We covered some of those factors here today, but there’s still more.
If you’re considering whether you should sell, no matter the reason, make sure to do the work to consider every angle as well as potential solutions outside of just selling.
Owning rental property is a greater opportunity than ever and the U.S. rental market continues to grow.
However, only you know your own situation well enough to decide what you should do.
We hope this helped you gather a bit of new information to make that decision a little easier.