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.
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!
Download Your FREE Rental Application Form!
It may seem like a small thing, but having a solid rental application is the first step in finding great tenants. Since BiggerPockets is all about helping you succeed in real estate investing, we’ve put together a complimentary Rental Application for you to use. Download it today and go find some great tenants!
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.
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.
2. 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?
3. 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.
4. 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.
We’re republishing this article to help out our newer readers.
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!