If you’ve ever had to sell a rental property, you may know the unique set of challenges that come with this process. Selling a rental property requires a different approach than selling a standard residential home! From dealing with taxes to finding interested buyers, you will have to use entirely different marketing strategies for selling a rental property.
While this may seem overwhelming, there are ways to sell your rental property while maximizing your income and avoiding common tax pitfalls.
In this article, we will go through 10 steps that you can take to ensure that your property sells for the right price and avoids sitting on the market for months and months on end.
Keep reading to find out more.
10 Steps for Selling Your Rental Property
1. Set the Right Price for the Property
While this may seem obvious, setting the right price for a property can be harder than it looks. Figuring out how to accurately price a property is the first step in selling it. Pricing is especially important when it comes to listing an investment property for sale, and it is always important to find the right balance.
If you list the property at too high of a price, you may deter potential buyers and end up having to deal with the home sitting on the market for months on end, which is never ideal.
However, the other extreme can be detrimental to your financial health too. Setting the price lower than you should could result in you losing out on a significant amount of money, and it could mean that you won’t get the most that you can out of your investment.
If you want to avoid these pitfalls when you are listing your rental property for sale, a comparative market analysis should be a big part of your selling strategy. A comparative market analysis (also known as a CMA) refers to the process of looking into the prices that similar properties in the area have sold for in recent months.
By doing this, you will be able to price your rental property properly, allowing you to maximize the return on your investment, all while making sure that the home doesn’t end up sitting on the market for too long.
2. Analyze the Local Housing Market
As mentioned before, it is important to analyze the housing market in your area in order to find the best price for your rental property. However, this research can help you with more than just the price of the home!
When you look into the overall health of your local real estate market, you will ultimately be able to better understand the value of your property, which can help you market the property to other investors. In fact, this may end up being one of your strongest selling points.
If you are able to include a strong real estate market and high occupancy rates in your advertising strategies, you will have investors knocking at your door at the opportunity to capitalize on your property’s potential.
Having a strong knowledge of the area’s available land and construction project plans may also prove to be useful in the selling process, as this can give you a better idea of the area’s future price trends.
Including some peace of mind with the sale is sure to boost the desirability of your rental property to other investors. If your buyer knows what projects and plans are happening in the area before committing to the property, they will be more likely to feel confident about their decision to purchase the home.
3. Maximize the Rental Income of Your Property
When a prospective buyer is considering your property, one of the primary factors that they are taking into consideration is the income that they can expect from it over time from future tenants.
If you are able to, try making improvements to the home that allow you to charge a higher monthly rent from tenants. A higher monthly rent will allow you to sell the property for a higher overall cost.
Now, when you’re thinking of potential improvements and upgrades to the home that could be done, keep in mind that these upgrades don’t have to be major construction or remodeling projects. In fact, there are endless amounts of ways to upgrade your property and add value to the home that don’t involve breaking the bank.
Whether it’s improving the curb appeal of the property, painting the cabinets to make the kitchen look more cohesive, or upgrading the bathroom, anything helps! Investing some time and money into these upgrades will make your rental property more appealing to tenants, which means it will also be more appealing to real estate investors.
At the end of the day, the outcome of your sale will be highly determined by how appealing your property is to tenants, and how much profit the next buyer will be able to generate from the home.
4. Minimize the Expenses of Your Property
In a similar fashion to the point above, minimizing the expenses and monthly operating costs that are related to your property will only make it even more attractive to potential buyers. When setting up your rental property to be as appealing as possible to other real estate investors, your goal should be to maximize the cash flow to the best of your ability.
Part of this is lowering the monthly expenses. To do this, you can make small improvements to the home, such as installing top-quality insulation to the property and upgrading appliances to be modern and more energy efficient.
This will significantly reduce the operating costs of the property. In short, a higher cash flow is the key to gaining attention from potential buyers. In fact, it may even seal the deal and get you the sale for a higher price than you thought.
5. Get Familiar with Your Local Tax Laws
The taxes that are involved in the sale of a rental property are usually much higher than the sale of a traditional residential home. Knowing this, it is important that everyone who is considering selling a rental property is familiar with section 1031 of the US tax code.
If you are selling your property in order to acquire another one, section 1031 of the US tax code may be of use. By using this tax code, you will be able to sell your current rental property, acquire a similar investment property, and defer your capital gains tax payments at the time that the exchange occurs.
This method of approaching taxes has the potential to have a huge effect on your finances when you are selling a rental property in hopes of purchasing another one.
Having a strong knowledge of this tax code will allow you to avoid a huge loss on the sale of your investment property or a negative return on investment. One of the best ways to approach this is to seek the help of a knowledgeable accountant who can help you navigate the sale.
6. Utilize Free Websites to List Your Property
Free listing websites can prove to be a valuable resource in the process of selling your rental property. These rental listing websites can help to provide you with opportunities to reach the screens of hundreds, or even thousands, of prospective buyers who are looking for a new property to invest in.
Using these websites can significantly expand your reach when selling a property, and the process has been made a lot easier over the last few years.
7. Stage Your Property Well
Taking the time to properly stage your rental property is an incredibly important step in successfully selling the home. By staging the home, you are allowing the buyer to picture tenants living there and enjoying it.
Your goal should be to make the buyer understand that the property will be an attractive place for tenants and that they will be able to earn an adequate amount of money from rent payments.
The truth is, staged properties of any kind tend to sell faster, and at higher prices, than properties that don’t have any staging involved at all. This fact alone makes staging an absolute must for anyone selling a property.
But how do you properly stage a rental home? Here are some tips to make the home look its absolute best:
- Remove any clutter or debris from the home.
- Clean the property as thoroughly as you can.
- If you want to go the extra mile, seek the help of an interior designer to stage the property.
8. Invest in High-Quality, Professional Photos
Once your rental property is staged, it’s time to show it off in the best way possible. That’s where the photos come in! We recommend that you hire a professional photographer to make your listing look its absolute best with stunning, high-quality photos.
While this may be a small financial setback, the investment is almost always worth it if it means your property isn’t sitting on the market for months.
But why are photos so important when it comes to selling a property? Well, pictures will most likely be the first impression that a potential buyer will get of your property.
If the pictures are low quality or don’t properly show the best features of your property, interested buyers may just move on to the next listing. The photos on your listing may be the difference between a sale and an “I’ll pass”.
While hiring a photographer is an excellent route, many choose to take the listing photos for their property themselves. If you do choose to do it yourself, make sure to use the following tips to ensure that your photos (and videos) are the highest quality possible!
- Clear any clutter from the room before starting to take your photos.
- Make sure that your lighting is as good as possible. If you can use it, natural lighting is always best! If natural lighting is not available, make sure to turn on all the lights in the home.
- Make sure to always be strategic with the angles of the photos. When photographing any home, it’s important to make the rooms appear as wide as possible. This can be done by including two walls instead of three in the photo. Three walls have a tendency to make rooms appear smaller than they really are in person.
- Be aware of your height when taking photos of a room. Taking a photo from too high up can make the environment seem unnatural. Your goal is to make the space look like a natural home that tenants can enjoy and buyers can profit from.
- Include a list of all the shots you want to take so that you stay on track. Make sure that you include the exterior of the home and each room.
- Make sure to use a high-quality camera. In fact, you can even use a modern smartphone to take photos, as the camera quality tends to be better than you’d think!
9. Market Your Listing
Now that your property has been properly staged and you have high-quality photos for your listing, it’s time to market the property. This process goes beyond just marketing your property online. The best way to effectively market your property for sale is to use both modern and traditional methods.
When strategizing the best way to get more eyes on your home, there are countless resources that you can use outside of online websites. Try making use of your local publications, newspapers, or even front lawn signage to catch the eyes of any interested buyers that may be casually driving by the property.
While all of these strategies will have an effect on how quickly your property sells and how many people see your listing, the most effective way to strategically market the home is to understand who your target audience is and directly market towards them.
It’s a lot easier to market to real estate investors than it is to use mass marketing outlets, as you will be showing your listing directly to buyers who are looking for exactly what you are selling.
10. Post Your Listing at the Right Time
When it comes to selling any kind of property, timing is everything. It’s important to be aware of the current real estate market in your area, whether it is a down season in sales, what the demand is like, and whether it would make a difference if you waited for a bit longer to post the listing. These are all important things to consider when selling your property.
Additionally, the timing of your listing can affect your taxes as well. For example, if you have owned the property for under a year, it may be wise to hold off on selling it for a while. If you own a property for over a year, you will be able to avoid a large amount of short-term capital gains.
This means that any money that you make from a sale of a property that you only owned for less than one year will be considered a part of your overall income, and you will most likely be considered in a different tax bracket.
Then, when you go to do your taxes, you will be taxed in whatever bracket you have moved to due to selling the property. This ultimately means that waiting to sell your property until you have had it for over a year can help you avoid some major financial pitfalls.
When it comes to long-term capital gains, they are applicable to any properties that have been owned for over a year. These properties will be taxed at 0%, 15%, or 20%, depending on what tax bracket you fall into. This means that knowing exactly when to sell your rental property could be the difference of thousands of dollars in taxes.
As you can see, selling a rental property can be a huge decision that can be incredibly lucrative if it’s done right.
In order to avoid losing money and get the most out of your investment, you have to know how to market your property to interested buyers, set the right price, and prove to other real estate investors that your property is worth the initial cost.
By following the above tips and tricks, you’ll be sure to quickly sell your rental property for the right price and avoid financial pitfalls.