Common and urgent reasons to unload your investment property:
If Real Estate Is Too Much of Your Net Worth
Experts recommend holding investments in at least three or four different asset classes, with a roughly equal portion of your value in each class. If real estate is more than half your net worth, you might want to consider diversifying.
If Long Term Tenants Move Out
Long-term tenants don’t always a allow for continual upkeep on your rental. If your tenants move on, and the market looks strong, you might want list your rental in place of exhaustively upgrading.
Increase in Property Taxes
A times, property taxes go up right alongside home values, sometimes even outpacing them. When property taxes increase, landlords have to pay them out of their rental income, so either their profits go down, or they’ll increase rents to make up the lost revenue. In either case, the situation can get complicated; higher rents mean a smaller tenant pool to draw from, and smaller profits means, well, less money. Only a few successive property tax hikes can make an investment property financially unfeasible.
Reset the Depreciation Clock
Depreciation can play a big part in an investor’s financial strategy. When properties no longer offer any potential depreciation, it’s time to sell, and buy newer properties, thus resetting the depreciation clock.
If you’re a short-term investor or have reached the financial capacity of your property, leverage a favorable seller’s market to get the highest return. Work with a knowledgeable real estate broker that understands the local market and its trends, so you know when the best time is to sell.
A Bigger, Better Opportunity Presents Itself
If you’re looking to turn your present investment into a larger one, a 1031 exchange is a valuable tool. The 1031 essentially lets you trade one property for another, a more valuable one, while temporarily deferring capital gains taxes.
An investor can exchange a small duplex for a larger six-unit property, using a 1031 exchange, and then flip that six-unit property for a full apartment building with another 1031 exchange, and defer capital gains from all the transactions. Since capital gains taxes can take a huge bite out of your profits when you sell, being able to delay this tax bill, potentially indefinitely, is incredibly valuable.
This article is highlights from Thomas O’Shaughnessy article, How to Know When It’s Time to Sell Your Property and Buy Another.