Multi-family properties are great investments that have multiple tenants ensuring you are able to build equity in the property quickly and efficiently. But as with every niche in real estate, there are times to buy, times to hold and times to sell a property. Here are signs it is time to sell your multi-family property in Northern Virginia. Pay attention to them to avoid holding on too long and losing money in the process.
Rental Market Changes
When you bought the property, you had tenants lined up and ready to sign long-term leases. The neighborhood was desirable with great schools. Suddenly you find yourself flipping through tenants who can no longer afford the rent payments. More and more places are vacant and you are seeing a strong decline in the neighborhood schools and amenities. This might be a time to consider selling your multi-family property, especially if you are not living in one of the units.
If rents are going down but interest rates haven’t changed or you are unable to refinance for better mortgage terms, your multi-family property could quickly become a sinkhole of money going out and not enough coming in. There are also times when people find that rental prices and mortgage prices are effectively the same, thus it becomes expensive to rent because they never get any equity. These are market conditions that are signs to consider selling the property.
A change in the rental market is not the only reason you may have tenant issues. You may see that crime is up in the neighborhood and suspect that there are prohibited activities going on in the area and possibly in your property. If you fear that the incident isn’t isolated, it may be time to consider selling.
If tenants are allowed subleases or unauthorized people to live in the property, you could be at risk of losing funds, having property damage and lose potential profits in increased maintenance and utility costs. Worse, if tenants are using the property as a hub for illegal activities such as drugs or prostitution, there is the potential for seizure of the property by government authorities. This is a risk you don’t want.
Keeping an investment property is a time commitment. You must manage the property by taking the time to collect rents, advertise for new tenants, fix and maintain the property. If you have been doing this and no longer have the time, you might consider hiring a firm to do it. If the numbers don’t make sense to pay someone, it might be time to sell.
This happens often when an investor buys a property in one area that is convenient to his home but then moves out of the area. If the revenues of the property don’t warrant a property manager, investors often decide to flip the property into a new one closer to home or cash out.
Buying commercial property has tax consequences. While you own the property, you get the benefit of deductions and depreciation. If you don’t hold the property for at least two years before selling, you could be paying short-term capital gains. If you hold it longer, you may still pay gains but at the lower, long-term capital gain rate. If the real estate market has declined, at least in the area of the multi-family home, it might be a good time to take a loss and offset other gains you may have in your real estate portfolio.
If you are unsure about the timing of selling your multi-family property, speak with one of our professional real estate agents. We can help you run the numbers to see if selling or holding is your best bet at this time.