What are the main reasons a landlord looks to sell a rental property?
Whether you live in a rental property or own one, you know that it can be difficult to maintain and operate. Being a landlord can be stressful. Keeping up with repairs and maintenance while also staying on top of tenants’ rent is a lot to maintenance. This is what drives everyone to sell a rental property in Pittsburgh.
What is a Rental Property?
A rental property is a home that is purchased by an investor. This investor then acts as a landlord and finds tenants to live in the house to lease the home. Rental properties can be single-family homes, condominium units, apartments, town houses, 2 – 4 units, and then commercial which is 5+ units (classification varies for 2 – 5 units in certain states). A rental property serves as a real estate investment which comes with its advantages and disadvantages.
What is the appeal of a rental property or why do you want to sell a rental property?
Having an asset that you can see, and touch creates a comforting feeling that you’ve bought something solid and stable. Besides, there’s a limited supply of land while the demand for it continues to increase, so it’s advisable to buy a property.
Property Appreciation or to Sell a Rental Property
Home prices in the U.S. have historically increased over the long term, however, the opposite can occur in a large way in a down market.
As the Federal Reserve reports, the median sale price of houses sold has increased by more than 40% over the past 20 years. However, during that time frame, home prices did go up and down. During the Global Financial Crisis of 2007 – 2009 housing prices dropped by about 20%+ and declined by nearly 5% between Q4 2017 and Q2 2020. The future of 2023 will be written, but more than likely it will not be good as rates climb faster and faster to combat fast climbing inflation.
Rental properties are allowed to have expenses deducted in the categories that include ordinary and necessary expenses, investments, and depreciation. With this, you can deduct your insurance, interest on the mortgage, maintenance, and any physical wear-and-tear on your rental property.
- Operating expense deductions from gross rental income
- Depreciation expense used to reduce pre-tax net income
- Owner deductions such as traveling to the rental property and tuition for continuing education
If you rent out your property seasonally, then you are able to use your property for 14 days per year. Another option is to use it for 10 percent of the number of days that you rent to other tenants at a fair price while deducting your expenses.
What are the Cons of Rental Real Causing to Sell a Rental Property?
There are cumulative costs and monthly fees you have to worry about when managing rental property. Moreover, maintenance of the property – plumbing, HVAC, paint, roof, electricity, and water damage – is nowhere near cheap to maintain.
Rental property requires constant maintenance and repairs to keep the home habitable and maintain the property value. Although some investors use the 50% Rule to ballpark the operating expenses of a rental property, maintenance costs will vary from month to month. In fact, it’s possible to have negative cashflow in a month where repair costs are unexpectedly high.
Delayed repairs is one of the largest reasons to sell a rental property for cash.
Mortgaged properties will experience troubles when interest rates start to hike. The monthly repayments for the loan may become higher than what you earn from renting the property. This is very probable with the current economic conditions underway. Now, we don’t have large recessions all the time, however, they do come which means a spike in interest rates and a rise in unemployment. These two economic factors could and will affect rental investments. This will cause a large amount of landlords to sell a rental property.
Even when carefully looking for prospective tenants, the chance you might end up with very difficult tenants is possible. Some examples include tenants who might don’t pay rent, are destructive, break leases, bother other tenants, etc. The business is very much focused on people like most are.
Some investors decide to self-manage a rental property. Others choose to hire a property manager to take care of day-to-day operations such as – tenant communications, rent collections, coordinating repairs with vendors, and complying with landlord-tenant laws and fair housing laws.
Regardless of the option an investor might select, the fact is that the buck stops with the investor. Decisions must be made about issues such as when to make a costly capital repair (such as replacing the roof, plumbing, and HVAC), or when and how to evict a tenant. Even if you outsource management the back and forth can be tiring and you end up having to manage the manager.
Outsourced managers have challenges as they typically operate with extremely thin margins. This causes an issue with not having enough people to operate their business or having the right people in place to operate the number of units. They can be delayed on repairs and renting vacant units which causes escalations in daily operations and lost money to the landlord owner.
I bought several multi units because a landlord wanted to sell a rental property due to the amount of issues a Property Manager caused.
Having your rental property thrive in a well-maintained neighborhood is the goal! This will ensure cash flow will be steady and have the probability to increase. If neighborhoods depreciate, so can the value of your property.
The neighborhood a rental property is located in can change over time, which in turn affects the value of the property. As the CDC explains, when gentrification occurs, the transformation of neighborhoods goes from low value to high value.
Unfortunately, the opposite can occur as well. Signs that a neighborhood is beginning to decline may include rising property taxes, falling ratings for public facilities like schools and hospitals, and “For Rent” signs suddenly appearing everywhere.
Profit is Never Guaranteed
Owning a rental property isn’t a guaranteed way of making money. Home prices can go down, operating expenses can be much higher than expected, and it can take much longer than expected to find a qualified tenant willing to pay a fair rent.
Taxes and Insurance Premiums Causing One to Sell a Rental Property
While there are plenty of things an investor can control with a rental property, two of the expenses that can be a challenge to predict are annual property taxes and the cost of insurance.
For example, taxes on property vary widely from state to state, and may significantly increase year over year due to the operating budget of the local government. In some states property taxes readjust each time a home is sold, a fact that some investors overlook when putting together a profit and loss before purchasing the property.
Real Estate taxes are very high in Pittsburgh, hence why a landlord would sell a rental property in Pittsburgh. There is no guarantee that rent can keep up and increase in most markets. In the case of natural disasters, insurance premiums can also be evaluated to increase.
How to Sell a Rental Property in Pitts1burgh
Sell your rental property for cash to Buys Houses. When you sell your property for cash you will receive a cash offer in return in as little as 24 hours! We will buy your house and make it a simple and stress-free process. Forget inspections and realtors and make cash fast! Contact us today and request a cash offer.
More cons on owning rental properties and why to sell a rental property.