There are many reasons why long-term real estate investors sell a rental property. Unfortunately, selling a rental property can be just as challenging as managing it, such as knowing the tax on sale of rental property. To help, we spoke with the industry experts on the best ways to sell a rental property for a profit.
Here are the 25 tips for selling a rental property from the pros.
1. Host an Open House
Than Merrill, Real Estate Investing Expert & CEO, FortuneBuilders
Selling a rental property has more to do with the sum of all the parts as opposed to just one strategy. Hosting an open house is one proven strategy to make a successful sale. Open houses are a great way to generate traffic. Combined with a competitive price point, a good open house could create a sense of demand that pits potential buyers against each other but in your favor.
2. Justify Your Rental Income
Shane Lee, Data Analyst, RealtyHop.com
When selling your rental property, you should be able to justify your rental income to your next buyer by doing a 10-year pro forma. To be conservative, you might want to project rent growth at 3 percent because this is consistent with the inflation rate. You also have to remember to project expense growth as well.
3. Price Your Property Strategically
Dustin Heiner, Founder, Master Passive Income
Price your home strategically to appeal to as many buyers as possible. Post the property at a lower price and let more people see your property and believe it’s a steal at that price. You can then have your property bidded out and accept the highest bid. The more potential buyers to view your property, the more likely you will get multiple offers, sell your home quickly and get above the market value.
4. Keep the Tenant in Place
Zach Evanish, Director of Client Advisory Services, Roofstock
If your target buyer is a real estate investor, then it’s great to keep the tenant in place. By selling a tenanted rental property, you continue to collect cash flow and rent income through closing, rental property investors will acquire an occupied home that cash flows from day one, and the tenants get to stay where they are with minimal disruption. It’s a win-win-win situation for all three parties.
Read our ultimate guide to turnkey properties for more information.
5. Highlight the Features That are Appealing to Renters
Joan Brothers, President & Licensed Real Estate Broker, Manhattan Boutique Real Estate
From a marketing standpoint, you need to highlight the features of the property that are appealing to renters. Most buyers want to buy a property that attracts renters easily because they want it to stay occupied. It’s important to be able to convince your buyers that your property is attractive and interesting and will get occupied easily.
6. Don’t Invest Time & Money in Fancy Improvements
Jason Reed, Realtor, The Duplex Doctors
Understand the difference between homeowner quality and rental quality. Most real estate investors won’t need the extra improvements you might consider to sell a home. A rental property should be clean and relatively up to date, but fancier touches like granite countertops or new wood floors are unlikely to provide any kind of return on investment when you sell.
7. Make Sure You’re Getting Market Rent
Kevin Vandenboss, Broker & Owner, Vandenboss Commercial
If you haven’t raised the rent in several years and other landlords are getting a higher rate for a similar property, you’re not only missing out on the extra cash flow but you’re also missing out on property value. Selling the buyer on the idea that they can raise rents seldom works out well for the seller. If the rents can be raised, better raise them before you sell the property.
8. Market the Property to Investors & Homeowners
Will Rodgers, Real Estate Consultant, eXp Realty
If the home needs repairs and too much work, it will likely only appeal to other investors who are not going to pay you the most for it. Be open-minded and consider selling the property to either an investor or a homeowner. To do this, you should make your home presentable and appealing to both an investor’s and homeowner’s perspective.
9. Do Not Sell It on Your Own
Kevin Deselms, Realtor, RE/MAX Alliance
It may be tempting to sell the property on your own but it’s very risky. You need to be experienced with a comparative market analysis and to determine an accurate estimate of value. You need to familiarize the contracts and requirements of getting a deal to the closing table. If you’re not well-equipped with these, your property may languish on the market with little interest. It can also cause a significant price drop and result in an opportunity lost.
10. Create an Online Marketing Tool Using Rentometer
Kris Lippi, Owner, Get LISTED Realty
Use an online marketing tool, such as Rentometer. This tool pulls historical rental property listing data that have been rented recently. Once you input your address, bedrooms and expected rent, it will tell you if you are high, normal or low for rent. This is a great tool to show investors they could be making even more money once they buy your property and raise the rent to current market rates.
11. Prepare Your Financials
Timothy J. Ryan, President & Managing Broker, Monarch Realty
When selling your rental property, it’s important to get your numbers together. Be ready to demonstrate expenses in granular detail. It’s also best to have the pertinent schedules from your tax returns ready. Further, make sure to prepare the historical information of your property’s performance and revenue because real estate investors would be interested to know that.
12. Make Sure Your Home is ‛Show Ready’
Alayna Summanen, Realtor, Coldwell Banker Vanguard Realty
When selling your property, make sure that it is presentable and appealing to buyers. Cosmetic updates, such as new mulch and some flowers out front, fresh paint and having the carpets cleaned will go a long way in making sure that your property is “show ready.” A deep cleaning is also imperative as buyers often associate dirty homes with deferred maintenance.
13. Work With an Agent Who’s Familiar With the Area’s Market
Raphael Fetta, Licensed Associate Real Estate Broker, Bohemia Realty Group
It’s paramount to work with an agent who is very familiar with the rental market in the area. Many brokers focus almost exclusively on sales while neglecting the rental side of the business or delegating rental deals to another agent on their team. Having close knowledge of what the current market pricing is and what amenities or upgrades will produce the biggest upside ROI can make a big difference when considering offers.
14. Wait Until the Lease Expires
Elisa Meyer, Technical Writer & Real Estate Educator, AYPORealEstate.com
If you’re selling a rental property to a homeowner, it’s best to wait until the lease expires and the current tenant moves out. Tenants will typically find it uncomfortable to have strangers traipse through their rented home. It’s challenging for the owner to have them cooperate, accommodate showings and keep the property presentable. It’s best to wait until the property vacated so it can be shown without an appointment.
15. Work With a CPA & Real Estate Lawyer
Christopher M. Turney, Real Estate Sales and Marketing, Prevu Real Estate
Hire a CPA and real estate lawyer to go over and certify your financial and tax history and legal documents like leases, work permits and resolution of any violations. Many landlords, especially with multifamily properties below $2 million, encounter issues like not having a complete tax history, having open violations and not properly following rent control and stabilization laws. These open issues can torpedo a deal or dramatically lower offers.
16. Plan for a 1031 Exchange to Defer Capital Gains Tax
Ernie Rafailides, Managing Member, Bayview Management
Don’t sell rental properties especially if you don’t want to pay taxes or you don’t have a 1031 exchange lined up. However, if you intend to purchase another property, consult with a tax professional who is experienced with 1031 exchanges. If you qualify for a 1031 exchange, you can use the proceeds from the sale of your rental property to purchase another one and defer the capital gains tax you would have otherwise paid.
If you want to learn more, read our ultimate guide on the Section 1031 exchange.
17. Offer the Property to Your Tenant First
The first step in selling a tenant-occupied property should be to ask the tenants first if they want to buy it. Often, the tenants are interested in buying. If they are, have them get pre-approved for a loan and under contract. You will build a better relationship with them, and they will appreciate the fact that you offered them the opportunity first.
18. Know How to Deal With Difficult Tenants
Laura Agadoni, Contributing Writer, Trulia
A hostile tenant may refuse to let you show the property to prospective buyers, won’t keep the property in order and show-ready or might even scare away the buyers. You should know your rights as the owner. Trulia suggests to offer incentives so tenants will cooperate or, if they continue to pose a problem, you may call the police to force the tenants to grant you access or terminate the lease.
19. Use Animated Video as a Marketing Strategy
Ranah Asad, Contributing Writer, Mashvisor
The use of animated video does not only benefit landlords who are marketing their properties for rent. It also helps those who want to sell their homes. You can do this yourself using your phone or hire a professional to take the video. Mashvisor recommends featuring local landmarks or sites in the video to target customers looking for properties in a certain area. This is a great tool to add to your online listings.
20. Assess the Damage & Costs of Repairs
PDX Renovations Staff Writer, PDX Renovations
If you’re not planning to repair the property before you sell it, expect that buyers will ask to make lower offers. To be sure that you’re selling it at the right price and not at a bargain, PDX Renovations recommends having your house inspected so you can assess the damage. Also, find out the costs of repairs so you can consider these costs when pricing the property.
For more information, read our article about normal wear and tear for rental properties.
21. Declutter & Clean the Property
Frias Properties Staff Writer, Frias Properties of Aspen
If your target buyer is a homeowner, they will most likely want to buy a property where they can move in right away. Frias Properties suggests that you clean your property and make sure to declutter it. Personal items of your previous tenants should be removed and make the property look as ready as possible for a new owner-occupant.
22. Offer a Shorter-term Lease to Existing Tenants
Kaycee Wegener, Contributing Writer, Rentec Direct
If you’re planning to sell your rental property, wait till the lease term ends or offer a shorter-term lease to your new tenants while you’re still in the process of selling. This way, it won’t take too long before the lease expires. If you are able to sell the home before the lease expires, Rentec Direct recommends that you ensure the buyer agrees to take over the lease.
23. Consider A Rent-to-Own Arrangement
Julie Ryan Evans, Contributing Writer, National Association of REALTORS
If you’re offering the property to your tenant, the National Association of REALTORS suggests that you also consider giving them a rent-to-own option. This type of arrangement is especially applicable if your tenant is having trouble coming up with a sizable down payment to get a mortgage. Make sure to seek legal assistant in writing the agreement so your interests are protected.
24. Improve Your Curb Appeal
MSP Staff Writer, Maui Showcase Properties
First impressions last, so it’s best to keep your yard well-maintained and improve your overall curb appeal if you want to sell your rental property fast. Maui Showcase recommends mowing and trimming your lawn, keeping the flowerbeds fresh and washing the sidewalks as needed. This is best done if your rental property is vacant. If it’s not, you can ask the tenants to maintain the lawn or just do it yourself.
25. Use Online Channels to List Your Property
There are different online channels that post properties for sale and most buyers these days will initiate their searches online. So, if you want your property to have a greater exposure and target a wide range of audience, consider listing your properties to different online channels, such as Zillow, Trulia, Redfin and Craigslist.
Bottom Line – Selling a Rental Property
A rental property may be sold to either another real estate investor or to a homeowner. You can use different strategies to ensure that you sell your rental property successfully. If you’re planning to sell your rental property for whatever reason, make sure to remember the 25 expert tips listed above to get the most benefits from your sale.