4 Steps to Take Immediately After Selling Your Rental Property

by | BiggerPockets.com

Sometimes it just makes sense to sell a rental property. Whether you’re looking to free up some equity, just completed a rent-to-own transaction, or are simply tired of the hassle, it’s important that you respond appropriately after a sale.

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4 Steps to Take Immediately After Selling Your Rental Property

Once you actually have an offer in writing and formally accept it, a closing date will be set. But you need to have a plan before closing day arrives for how you’ll deal with moving out and onto the next stage of your life as an investor.

Here are some things you need to think about.

1. Don’t take anything that’s not yours.

If you’ve never sold a home before, then you may not be aware of what the cleaning up and moving out process looks like. Just because you bought something and installed it in the home years ago doesn’t mean you get to keep it. There are certain things that are assumed to be included with the purchase of the property, unless explicitly stated otherwise in the purchase offer.

Things like built-ins, hardware, alarm systems, appliances, mounted light fixtures, and other items that would be considered part of the physical structure should be left in place.

2. Disconnect or transfer the utilities.

Don’t forget to disconnect or transfer utilities on the day you move out. The last thing you want is to leave your name on something you’re no longer paying for.

Related: Should You Sell Your House or Rent It?

“Utility accounts usually don’t have a strong impact on credits scores unless you miss a payment or habitually pay late,” High Risk Pay explains in this blog post. “The utility company can turn unpaid amounts to collection agencies, which will report the debts to the credit bureaus.” Avoid this mess by promptly getting your name off the accounts and making sure everything is paid in full through the closing date.

3. Use a 1031 exchange.

Capital gains taxes are a pain in the rear. They can cost you tens of thousands of dollars if you aren’t careful. The good news is that you can avoid paying taxes on the gains from your property if you reinvest those gains back into a similar property. This is known as a 1031 exchange and is the method most people use when selling a property.

This obviously requires that you purchase another rental property, though. So if you’re trying to get out of the landlording business altogether, you may have to suck it up and pay the taxes. It’s not the end of the world, but you definitely want to avoid them if possible.

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4. Invest the money in a money market mutual fund.

If you don’t use a 1031 exchange and instead take the proceeds from the sale of the rental property, it’s important that you put this money into an investment vehicle that can yield a return until you figure out what to do with it.

Related: How to Sell Your Properties With Owner Financing (and Avoid Dodd Frank!)

A solid money market mutual fund is a good idea and can even give you the ability to use the money if needed. It’s a highly liquid investment that will (historically) bring a higher return than a traditional savings account. Just be aware that you could technically lose a lot of money if you’re only planning on keeping the money in the fund for a short period of time. You have to be willing to ride out the market if there’s ever a drop.

Have a Plan in Place

It’s never smart to wait until closing day to come up with a plan. While there are certain things you can’t do until closing day arrives (or even until a few hours or days after), nobody can stop you from developing a strategy.

It’s the smart thing to do and will ensure you don’t get caught in a compromising situation.

Anything you’d add to this list?

Be sure to leave a comment below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

6 Comments

  1. David Krulac

    Hi Larry,
    Great article.
    On your first point, we’ve had people take an interior door with them, because it was a gift from a family member. Another time people took rose bushes. Another time sellers took trees and shrubs and left holes in the yard where the plants used to be. Dining room lights have been taken multiple times, once it was hideous and we were going to trash it anyway. Garage door remotes, other remotes and keys are also often missing.

    On your third point about the 1031 exchange, it doesn’t have to be a rental property only an investment property. we’ve exchanged rental property for developmental vacant land for example. The only real estate no eligible for a 1031 is your personal residences including primary as well as vacation and secondary homes. BTW there is a move in Congress to eliminate the 1031 exchange which has been in the tax code since 1920. As I talked about in Bigger Pockets Podcast #82, I think the law should go the other way and index long term Capital Gains to inflation.

    Thanks for writing your article.
    David Krulac

    • John Bierly

      While there is a proposal to eliminate the 1031 (in exchange for fully depreciating the value of the property in year one), I personally think tax relief in the form of lower rates is much more likely than reform itself. As ACA repeal/reform has shown, it is going to be more difficult for this administration to implement its agenda than it assumed, and thus more likely to pass things that most all Republicans agree on (lower taxes) than complex ones with competing interest groups (tax or health care reform). I’m not taking a position here on the relative merits of any of these, just observing.

      So, assuming 1031’s will stay around for awhile, I recently came across a new option in this area that I was unaware of. Realty Mogul now is offering (to accredited investors) positions in a 1031 exchange fund that invests in Triple Net and Double Net properties. To me, this is appealing in that it maintains a position in real estate while being truly passive (current yield is 6.5%), and also avoids the need to identify and close on property’s in 180 days. Definitely an option I’m going to look into more deeply with our next sale of a property.

  2. the 1031 is a great tool to use to give you time to think- we once went to dinner with some investor friends and the next day scheduled a closing ! To bad we cant 1031 exchange for some offshore property….lol.
    Our attorney is a gift from God and warned us that “post sale regrets”, Unknown/ Undisclosed issues sometimes lead to litigation, You told me this or you told me that- make sure you always have a plan B to protect your assets and money from “Alpha-Indias” as he says …( angry idiots)….use of LLC’s, insurance policies, Title insurance. The last thing you want is a judicial clamp on your funds , that maybe an irrevocable trust or other vehicle could shield you from….just our 2 cents….

  3. Audrey Ezeh

    A high yield savings account is another similar option. Most have interest @ 1% or better (Barclays, Dime etc) just like a MMA and most will have no minimum balance or as low as $1000. I see a lot of MMAs asking for 5-10k minimum to open but some are $0 but may have a lower interest rate. Thanks for a great article.

  4. Linda Hastings

    Don’t forget to cancel your insurance policy on the property. First rental we sold, for some reason I assumed the insurance company would be notified by the title company or someone else as part of closing. It wasn’t until I got an insurance renewal letter a couple months later that I realized no one told the insurance company.

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