Landlording & Rental Properties

5 Reasons You Should Sell That Investment Property

Expertise: Personal Development, Real Estate Investing Basics, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Real Estate Marketing, Mortgages & Creative Financing
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Real estate investors enjoy the thrill of acquisition. Who among us doesn't? A new property, a new opportunity, a new adventure—there's a certain excitement to it all that's enticing.

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To have a diverse portfolio is a good thing, too. We know, of course, that a variety of properties helps mitigate risk with that all-important safety net that keeps things chugging along should there be an unexpected vacancy or setback.

As buy and hold real estate investors, we don't usually consider selling.

Still, it’s a reality. Sometimes, we need to make changes to our portfolio. We need to trim the fat, so-to-speak, and cut out some investment properties that aren’t serving our best interests anymore. Or maybe selling properties was always part of your plan.

But where’s that cutoff point? How do you know when enough is enough? Does it make you a quitter to sell? In short, no. Investing in real estate is all about strategy, and having a keen sense for when to buy and when to sell is a crucial part of an effective strategy.

So without further ado, here are some tips on knowing when it’s time to give a property the boot—because let’s be honest, letting go can be hard!

4 Reasons You Should Sell That Investment Property

1. Your original plan was always to sell.

A major mistake made by many real estate investors is to not methodically and patiently develop a plan for how they want to invest in real estate. Impatience often leads to mistakes. The mistake is never knowing if you are on-track, off-track, or when to make adjustments.  

Related: Buy & Hold Real Estate is the Ultimate Investment: Here’s Why

Successful investors, no matter what the measurement used, are investors who make a plan before they start investing and follow that plan. That includes selling perfectly good assets that may be performing as expected. Maybe your plan as an investor was to make certain moves at certain timeframes, and that can include both holding properties forever and selling properties when everyone else thinks you’re crazy!

It is your plan for a reason. Make it. Follow it! You can always change at any point, but if you fail to make a plan at the beginning, you are already in the top percentage of real estate investors.

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2. It’s consistently generating negative cash flow.

Now, there are absolutely scenarios where an investor should make a change, whether it is part of their plan or not. This one should be obvious, but it’s not as easy as we’d like to think.

Cash flow can vary month to month as expenses fluctuate, which can make it unclear as to whether the property is turning out to be a dud or if you’re just in a temporary rough patch that will pass. After all, you don’t want to panic and make a hasty judgment call.

When you’re developing your real estate investment goals and strategies, consider how many negative cash flow months you can deal with and absorb. What are you willing to deal with before you decide to get rid of the property, keeping in mind that it may not sell immediately? Consistent negative cash flow is the number one reason to sell an investment property: It’s not generating income for you, so it’s not worth keeping.

3. It’s more trouble than it’s worth.

If you’re a passive real estate investor, the last thing you want is an investment property that you constantly have to fool with. Is your property plagued with issues that just won’t quit? Foundation problems, mold, termite damage, bad neighborhoods, flooding, electrical problems, or other chronic issues may need constant attention.

It’s just not worth your energy to worry about sometimes. If you’re a flipper, maybe that’s a challenge you’re willing to embrace. But if you’re the type of investor who wanted turnkey and didn’t get it, it’s probably not the kind of property you want to keep, especially if dedicating the resources to get up to par would be more of a drain on your wallet than it’s worth.

Related: 4 Essential Strategies for Taking on a Negative Cash Flow Property

If the numbers don’t make sense and it keeps you up at night with constant headaches, why are you keeping it?

4. You’re better off investing elsewhere.

Is another market calling to you? We're not saying you can't invest in multiple markets. Far from it! Diversification is good. However, there are definitely situations in which you'll have to choose between your current market and new opportunities, either due to limited resources or access to equity. Maybe your current portfolio has allowed you to "level up" and now access a market that you once felt like was beyond your reach, thanks to the equity you've built!

Maybe the economy is growing in a new market and not in your current one, and you’d rather pour your efforts into a place with clear opportunity. It’s all about your personal strategy and deciding what you want to do with your investments.

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5. Your investment priorities have shifted.

Over time, many real estate investors find they want to do something a little different. Many new investors, for instance, start with a single property, usually a cheap one, and try to landlord themselves. This doesn't typically give them the returns they dreamed of, nor is it a great strategy, even if, in theory, it's "saving money" on the front end.

Or, on the other hand, maybe they went into flipping and decided that approach wasn't what they liked. They want to be hands off. (Or the other way around!)

In any case, priorities and strategies change over time. We learn, we get better, and we change. Because of that, our portfolios change, too. Sometimes that means rearranging our portfolio to reflect and serve new goals!

No matter the reason for selling, what’s important is being decisive when you know you need to. If you want results, you have to be proactive. If you know what you want for your financial future, reach for it. Pursue it. If what you’re doing isn’t working, do something different.

Have you ever been in a situation where you were compelled to sell an investment property? Why?

Let me know your experiences with a comment!

Chris Clothier began building his rental portfolio in 2003 as a successful entrepreneur looking to diversify his investments. He quickly gravitated toward passive investing, establishing a portfoli...
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    Jerome Kaidor Investor from Hayward, California
    Replied about 3 years ago
    I bought a 20 unit complex at the top of the market. Banks didn’t like it so I had to take a fairly crappy 6.5% loan. Turns out they were right. The neighborhood got worse, the market tanked, and *boom* – that sucker ate my lunch to the tune of 4-6 grand a month for the next 10 years. The instant that rising RE values intersected with how much I had paid down the loan, I sold that sucker. My buyer got a great deal, and should be able to make money.
    Hugo
    Replied about 3 years ago
    You did better than me sir…I purchased a C class SFR from a turnkey guy in Indianapolis for around $50k…then 6 months later the tenant that came with the property stopped paying and was destroying the home calling the health department on me on these issues they caused such as purposely breaking the water pipe behind the fridge flooding the kitchen kind of thing. Meanwhile the incompetent property manager is calling me asking what would I like to do? This is of course after the tenant is 3 weeks behind on the rent already. Long story short ended up splurging $25k on repairs and eviction costs. I use an enrolled agent for my taxes and this loss helped off set other income from various other investments I hold in other arenas but it still was a very foul investment I just had to experiment with. From my short experience I truly wonder if people are really making money in buy and hold real estate as I foresee the costs involve to hold the property can potentially out pace the rental income.
    Colin Reid Investor from St Petersburg, FL
    Replied about 3 years ago
    I haven’t sold one yet but I’m proud to say I’m not emotionally attached to any of our properties. I’ve received yellow letters for my first home, which is now rented. I have called the number and asked for their offers, but all seemed programmed to demand my price first. I guess my price is too high (I’d need above market to make it work), so they don’t call back. My PM recently forwarded a query from my tenant asking if I’d be willing to sell. I told him no, for now. I have only owned it for three years and the market hasn’t appreciated enough to make it a good deal. I told him to keep me informed on the values and comps, because it’s just an asset to me. If the numbers work, I’ll sell. They simply don’t right now. I’m just proud of the fact that what used to be a very emotional asset is now just a thing.
    Tom
    Replied about 3 years ago
    The yellow post cards you get are for suckers. They are scavenging for people who are desperate. I have a property that I net $7,800 a year on. I was interested in seeing how much they would give me. They offer $11,000 cash for the property or a couple other options that were not worth my time. Yeah, thanks for the insult… find another sucker.
    Mary B. Real Estate Investor from Lansdowne, Pennsylvania
    Replied about 3 years ago
    Chris must be reading my mind as 2 out of 4 of those definitely fit my situation. Kudos, Mary
    Thomas Williamson Investor from atlanta , Georgia
    Replied about 3 years ago
    Another reason to sell is when a property goes up in value, and that property can now be turned into two or three properties via 10-31 exchange. I have one that I’m about to sell via 1031 and turn that one property into two or three homes.
    Kris Patel Investor from Arroyo Grande, California
    Replied about 3 years ago
    I went to commercial with nnn drug store Less number of property, less headache
    Rodney Smith Real Estate Investor from Bend, Oregon
    Replied over 1 year ago
    Good article, thanks Chris. I’m in process right now of making a decision to sell my portfolio (1 Duplex & 2 SFR’s in the KC, MO area) … I really liked your call to remember/stick to the plan as well as the 4th reason of identifying shifting investment priorities. I’ve really had to remind myself why I have been working so hard to build the equity and rentals we have, and consider that it may best serve my goals to actually sell the properties at this time, but it still feels difficult to let them go and actually put them up for sale. As I prepare to list my properties for sale this article is a good refresher and exercise in critical thinking. Thanks for posting!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 10 months ago
    Great article! (Other than I count 5 reasons you should sell your investment, but that's OK)