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Selling a Rental Property

Selling a Rental Property

Maintain a Good Relationship With Your Tenants

The most vital aspect of selling your rental property is maintaining a solid relationship with your tenants. This is important because difficult tenants can move the sale back months or even up to a year in some cases. This is especially important in tenant friendly areas such as the Washington D.C. area.

Tenants, especially families, tend to see the unit as their home, even though they do not own it. Its important to be aware of the pride and other emotional ties tenants may have with your unit. There are a couple things they will worry about:

Will we have to move?

Will we have to open our home to strangers for open houses?

You will want to discuss the sale with your tenants long before you put it on the market to make sure they are prepared to move, if they do indeed have to move, which may not be the case. Whether or not they will have to find a new home, they will definitely have to open up their current home to strangers for open houses. Make sure they are aware of this and on board. Tenants have been known to agree to this only to cancel at the last minute or conveniently forget to clean up.

While it is important to maintain this relationship, it is also important to understand the law and what you and the tenant are legally obligated to do for each other. For example, tenants are required to open up their home for open houses. By law, they cannot refuse to do this.

You have obligations to the tenant as well, such as the Right of First Refusal. This means that the tenants have the right to purchase the property for the exact price and terms of the highest bidder. For example, if you get an offer of $200,000 on your rental property, you cannot accept it until you extend the same terms to your tenants.

Limit Your Vacancy

If you aren’t careful, vacancy can cost you big when selling your rental property. You want to limit vacancy as much as possible. If your tenants lease expires in five months, and the realtor says it will take three months to sell the house, then wait two months to start the process so that the end of the lease will line up with the sale of the property. Obviously this is an ideal situation, but try to get as close to it as possible.

Limit Your Taxes

Taxes are high for the sale of investment properties. They are even higher if you have been claiming depreciation on the property in previous years. For example, if you buy a house for $100,000, claim $5,000 depreciation a year for five years, and then sell for $150,000, you will pay capital gains taxes on $75,000, rather than $50,000.

Sale Price – (Purchase Price – Depreciation) = What you are taxed on

The best way to avoid all this and save money is through a 1031 exchange. This means you use the profit from the sale to invest in a similar property, and in doing so avoid paying taxes on your gains. Here is a great explanation of the 1031 exchange.

Selling

There are many ways to sell a house. For a local, family-owned real estate business that will buy your house fast for cash, check out 4 Brothers Buy Houses and see what we can offer.