Should you sell or hold your investment property? Selling or Holding Your Investment Property is a major decision. That’s the question that many people ask themselves when it comes time to make this important decision. For most real estate investors, the answer isn’t as simple as selling or holding, though. It’s usually a combination of the two, along with some short-term renting to help generate cash flow until you can sell your property or decide to hold onto it longer. If you’re thinking about selling or holding your investment property and would like to know more about the pros and cons of each approach, here are some things to consider.
Pros of Selling
The most obvious advantage to selling your property is that you can get some cash out of it. There’s also no guarantee that an investment property will rise in value. So selling might be a good option if you need to use that money right away. Finally, when you sell, you don’t have to pay as much in upkeep on your property.
However, as you probably know all too well, there are downsides to selling as well. You can’t necessarily get top dollar for your property and even if you do; that might not cover what you owe on it. And if you plan to keep investing in real estate anyway, why sell a property that has potential?
What’s more, there are some instances when selling your property could hurt you in your quest to invest. In particular, if you have money tied up in an investment property that was used as collateral for another loan—like a home equity line of credit (HELOC) with a balance on it. You could potentially lose access to that money if you sell your house.
Finally, one thing to consider is if you sell your property at a loss. It could have a big impact on your taxes. You can deduct many expenses from real estate as business deductions, which can reduce how much tax you pay overall. However, if you sell an investment property for less than what you bought it for—known as taking a capital loss. You can only deduct up to $3,000 each year against other income.
This is because when you take a capital loss, it gets added to other capital gains for that year. If your total losses are more than $3,000, then you have a net capital loss. These can be carried over to future years and deducted from any gains you have on investments in those years. But if your property has appreciated over time. Taking a loss might not be so bad—especially if you don’t plan on selling again anytime soon.
Pros of Holding
If you’re going to hold on to your investment property. You might as well be earning income from it while doing so. The first benefit is that you’ll have a stream of cash coming in every month; which will allow you to avoid dipping into your other savings. You may also be able to avoid having a tenant leave at inconvenient times since you won’t need to worry about showing up at your property unannounced.
Renting out a property is much easier than selling it since you don’t have to deal with as many people. You may also be able to make more money off of your rental if there’s a lot of demand for housing in your area.
Some investment properties have a lot of value in them which makes selling difficult. You may have to pay out thousands of dollars to get your property ready for sale, like demolishing an old building on it. If you don’t want to deal with all that extra hassle, you can just hold onto it instead. There are also other benefits associated with holding onto real estate: Depending on where you live, there might be some tax advantages to owning a property rather than renting it. This is especially true if you own multiple properties. And even if you only own one, there are still some benefits—like depreciation write-offs—that come along with ownership.
One final advantage of holding onto your property is that you may be able to make improvements over time, which will increase its value. You might spend some money fixing up a room, remodeling your kitchen, or fixing a leaky roof. Even if you don’t want to live in a property long-term, it’s possible that someone else would be willing to pay more for it than you bought it for.
We’ve broken down some common scenarios to help you understand when it makes sense to sell your investment property. As you read through these examples, think about how each could affect your bottom line. Don’t forget to consider things like what happens if you get a cash offer for below market value; how much work will go into getting a new tenant lined up (will you have to drop your asking price to find a renter?)? And is there anything that makes one scenario more attractive than another?
To help you understand how each scenario could affect your bottom line, here’s a rough approximation of what you’ll get when you sell your property:
1. You buy a house for $100,000, do some fixing up to raise its value to $110,000, and sell it for $120,000.
2. You buy a house for $100,000 and invest an additional $20,000 in repairs/renovations overtime to raise its value to $120,000, but you decide not to sell.
3. You buy a house for $100,000, fix it up to $120,000 worth, and don’t sell. But then you do get an offer far below market value ($95,000). Should you take it? Does that $25,000 affect your bottom line? What if you were offered $110,000 instead? Or would be different about your decision-making process in each scenario? Some other possible scenarios we didn’t cover here (e.g., what if you bought a condo for $75,000 but want to sell it for $130,000)? Are there any situations where selling might make sense even though you could potentially make more money by holding onto it?
If you’re unsure about whether to sell or hold your investment property, We are here to help you, you can contact us and we reply to you ASAP.