Are You an Out of State Landlord?
Managing rental properties while being away is a tough challenge. The surprising factor is that we don’t choose to become an out-of-state landlord unless the scope for making a profit is significantly high.
It would be better if the property is in the town and you can make visits to the place. It gives you peace of mind to know that you can interfere if your property manager is unable to manage the task or if tenants are creating problems for you.
We use the term accidental landlord here. What we see is that sometimes we must move out of state within a short period. The situation appears because of a job change, divorce, illness or lifestyle preferences. You might want to delay selling your house which leaves you with the option to rent the house.
Another case we see is that some of us inherit the real estate that is located in a different state. You cannot move homes, but you must do something about the inherited property. So, you decide to earn some extra income by renting the property. Now, you’re an out-of-state landlord.
This job has its pros and cons. Like mentioned earlier, unless the rental yield is significantly high, you don’t want to hold on to the property.
What do you do in this situation? How do you free yourself from the burden of managing an unwanted property? Selling the house is a viable option under certain circumstances. Here a few reasons to sell your rental property:
Evaluate the Cap Rate
Cap rate= Net Operating Income/Value of Property
You get the net operating income after subtracting the expenses from the gross income. Consider the current market value of the property. Add all operational costs such as the cost of hiring a good property manager and mortgage-related costs, i.e., interest rate. Subtract the operational costs from the gross income and then divide the numbers to get the percentage.
What’s your cap rate?
Investing in rental properties isn’t the only way out there to make money. There are other sources of passive income generation, i.e., dividends, REIT, RE Crowdfunding income, P2P income generation, and CD income, etc. Let’s consider the bonds. Suppose, you let the income sit in the bank account without doing anything. If the cap rate of the bond exceeds the cap rate of rental property, then it might be a good time to sell your investment property.
Sell Before the Market Takes a Turn
Real estate market is favorable for buyers if you witness growth in jobs, income, and supply of homes. When the housing supply increases, the home prices go down which shows market favors buying over renting. You can review this case by looking at the construction projects in your local area.
Take Benefit of the Capitals Gains Tax Exemption
If you have lived in the house for 2/5 years, and the price limit for the property is exceeding the $500,000, then you should sell the home. Because taxes will eat any profit, you might earn because of price appreciation.
How to Sell the Investment Property?
It is not easy to sell a house with tenants. Selling a free & clear property is an entirely different concept then selling a house that has an active lease agreement. As a landlord, you must be familiar with local laws and know your rights and responsibilities.
Since you’re living out-of-state, you cannot directly manage the selling process. Furthermore, there are selling expenses such as repairs, and commissions. If you want to terminate the lease, you must be willing to pay a good sum to your tenants along with the deposit.
In this situation, it makes sense to sell your home to a cash buying firm in Connecticut. A trusted cash buyer can assume the ownership of the property without asking the tenants to leave. You don’t have to tackle repairs or think about commissions. The process is fast since you can close the deal within 10-14 days. There is no need to terminate your contract with tenants.
Cash buyers can handle out-of-state transactions through digital means. If you’re interested in selling your out-of-state property, please give us a call.
Our team representative will guide you further.