Renting a property is a promising source of passive income, but what if your rental no longer serves the purpose? In such situations, you might wonder if you should sell your property, and when. You may also be considering selling the house if you want to buy a primary residence, need cash for some new investment, or do not want to handle the maintenance cost of the rental anymore.
The reason can be anything, but selling without a clear understanding and research may not be wise. It is essential to understand the signs that would indicate the right time to sell the property.
Here are four signs you should sell your Portsmouth rental house for all practical reasons.
Sell Your Portsmouth Property When the Cap Rate Is Low
The Capitalization Rate, commonly known as Cap Rate, is a calculation system that determines the profitability of your rental investment. Cap rate is your total rental income after deducting monthly operating expenses. It is calculated by dividing a property's net operating income (NOI) by the current market value. For example, if the NOI of your property is $600,000, and the purchase price is $10 million, then the cap rate would be 6%.
A high cap rate means high rental income and vice versa. You achieve a high cap rate when you purchase the unit at a small amount and rent it at a high price. The cap rate also depends on the location of your unit. In rural areas like Portsmouth, Norfolk, Virginia, it can increase up to 10%.
Cap rate increases over time depending on the rise of your rental income. Sometimes, calculations may go wrong, and the cap rate may fail. In such situations, investors can think of selling their properties.
The Market Trends Are in Your Favor
If you have decided to sell your house, the next question is when should you sell it. For this, you can analyze trends on popular real estate websites such as Zillow and Nolo. Consulting a trusted local real estate agent can also be helpful.
If the seller's market in your area is thriving, you should strongly consider selling your property. An increase in price per square foot rate, multiple buyers showing interest in your house are some of the most common indicators of a booming seller's market.
The Rental Prices in Portsmouth Have Dropped
Selling the house can be a good decision when the rental prices show a decline. Landlords often depend on monthly rent for operating expenses such as repair costs, mortgage, taxes, insurance, and more. If the rental prices fall in the market, landlords may face a financial crisis due to insufficient income.
You have to conduct regular market research to know the trends in rental prices. As of October 2021, the real estate market has witnessed significant growth in rental prices. According to Zillow, rental prices are increasing by 2.7% in the U.S. annually. Even in Portsmouth, the average rent increase is 6% as compared to last year.
You Cannot Handle the Maintenance Costs
Renting a house demands your constant attention to repair and upkeep issues. Calculate the age of appliances, your house's structural condition, and the estimated cost to make the necessary repairs and replacements. If the maintenance cost of your unit exceeds the monthly rental income, and you cannot handle it, you should sell the property.
You can think of offering a buyer concession if you meet a buyer who wants to fix the repairs before the closing process. Buyer concession can offer money for the repairs so you will not have to pay from your pocket.
Evaluating the factors mentioned above can help you make an informed decision about selling your Portsmouth rental. You can also take the help of a property management company for expert advice, like Doud Realty Services. We provide full-service property management in Portsmouth, Norfolk, and a large part of Hampton Roads. Our expert property managers have worked in the local real estate market for over 20 years and have seen market trends come and go. With their expertise, they can help you make the right decision when it comes to selling your property.
For more details, contact us at Doud Realty Services.