Real estate investment is one of the smarter ways of boosting your overall wealth and creating an additional stream of income. In fact, real estate investment is one of the most preferred investments for a lot of people.
There are several investors, who would argue that one must hold on to a rental property for as long as possible. However, there might be times or situations where you might have to sell your rental property. If you do, when is the right time to do so? Here are the top five reasons that you must consider.
- Retirement Plans:
Estimating if you have met your retirement goals can be slightly tricky but not impossible. Considering that you are happy with your current lifestyle, you can decide if you need the rental property anymore or not.
Take a stock of your different sources of income to identify how much your rental property is bringing in. This will help you decide whether you need the income from rental property or not. If your other passive sources of income are healthy enough, you no longer need to bother about owning a rental property.
Or, you might need a big cash reserve for your retirement, and given the strong market situation, selling your rental property might put up a strong case.
- Lifestyle Goals:
You might have certain goals in your mind when you decided to buy the rental property. Now that you have owned the rental property for a while, there are a few questions that you might want to ask yourself. Do you enjoy being a landlord or does taking random calls to fix leaky pipes stress you out? Does your property make enough money annually or would it make more sense to sell the property and invest it elsewhere?
- Asset Allocation:
It is always a good idea to pitch all your investment asset classes together to get a fair understanding of how each is performing. Once you review your assets, you might feel the need to reduce the allocation to rental property and thus plan to sell it off. Similarly, if you have most of your assets in real estate, it might be a good idea to diversify the same.
Selling your rental property will attract taxes, it is not a secret. The gains that you make are classified as capital gains and are taxable. If you sell your property in a year when you have had a lower income, you will end up paying lower taxes as well. You need to consider your tax implications before selling a rental property.
Do you have any other assets in mind to invest in the proceedings of selling the rental property? You might consider investing in REIT or Real Estate Investment Trust. It works a bit like mutual funds, where you can receive dividends without having to own, manage or finance a rental property.
You should consider the above factors before deciding whether you should sell your rental property or not.