When should I decide it is time to sell my rental?
Dustin Edwards • July 3, 2020
At Some Point the Decision to List for Sale or Continue for Rent Should be Asked
Owning a rental property is usually filled with a bit of trepidation. After all, what happens the first time the property is vacant? Of course for many that decision doesn’t even alarm them, but there always comes a time when people ask...should I sell my rental?
While we aren’t CPAs, you can look up the tax code and find out that you can sell a primary residence with a gain of up to $250,000 as an individual tax free or up to $500,000 if you are married. tax free. This rule applies if you have made the property your primary residence for at least 2 of the last 5 years. In Southern California where the gains can be in the 5-10% range annually over a 5 year where the median home value in Los Angeles County was valued at $650,000 in 2020, then taking a tax free gain can be pretty tempting. If it were only that easy then many people might sell each time within the 5 year window, so why do so many decide to keep their rentals? We invite you to consider a deeper thought process to help you decide what is right for your goals.
Selling Outright
When we work with property owners, sometimes it is their first rental and that is great. At times that means they use that first rental as the foundation of a real estate portfolio and at other times they decide that owning a rental just isn’t for them. Regardless of their decision we are here to help them in their mission
If selling is the right decision, we do have a division that is designed to help our rental owners sell their investment properties. Especially those owners who meet the requirement of having occupied the property 2 of the last 5 years as their primary residence we understand the objective of taking those tax free gains vs. taking the long term gains that are offset by depreciation.
For those owners taking the gains on their investment property the main question we ask is “what is your goal with the gains from this property?” While certainly people don’t have to answer, our main purpose in asking the question is ensuring there is a plan in place after the sale. With any of our clients we want to make sure we help them achieve their goals, even if that means we don’t benefit long-term.
1031 Exchange
For many long term property owners this has proven to be a great strategy. A 1031 exchange
allows you to defer the taxable gain. In other words you could have a gain, north of $500,000 (if you were married) and delay the taxable gain. For many property owners, especially those in Southern California, it can allow you from being a single family rental owner to a 2-4 unit property owner.
For example, just envision that you are the owner of a $700,000 single family home owner in Long Beach and you have a dent position of $150,000. Your gain, even with fees, would likely be north of $500,000. Provided that you are looking to put a minimum down on your next income property that would allow you to invest in a property north of $1,500,000 giving you access to a wide array of real estate options (2-4 units or even larger) throughout Long Beach.
End of Depreciation Period
The decision to sell might also come due to the end of the depreciation cycle of your residential income property. The tax code
(please check with your CPA) allows a depreciation expense for 27.5 years. If you have owned a residential income property, especially in Southern California, for 27.5 years it is likely that you have a large gain available and it could just be time to sell. Of course if you are in that position we would recommend meeting with a CPA and even including us to explore your options in up leg properties to see if a 1031 exchange might be best.
Whether you want to take a tax free gain, are considering a 1031 exchange or you are at a crossroads due to the end of depreciation we understand the decision isn’t an easy one. When you want to find out more about your options invite you to call us today (562) 888-0247 and we can share our experience. When you are confident you want to continue to rent out your property we invite you to fill out our Free Rental Analysis
where we perform a comprehensive comparison to share your rental stacks up to the competition.
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Your property’s roof is its first line of defense from the sun, rain, and wind. Which means it will eventually wear out. Many landlords overlook this since a roof is generally designed to last twenty or so years, and they simply forget until the signs begin to show. Below, we’ve compiled a short list of five signs it’s time to replace your roof for when doing property inspections. Tenant Complaints When your roof has become damaged, your tenants will likely be the first to notice. When tenants report water stains on the walls and ceilings, it's a sign that you should inspect your roof. In severe cases, your tenant may notice water dripping from roof leaks. This moisture, if left unchecked, can lead to the growth of mold and mildew, which can be a health concern for your tenants. Some tenants simply move out, assuming the odors or recurring respiratory issues are caused by the rental and not just the roof. This leaves you with a vacancy to manage, and if you’re unable to find the leak during this period, the following tenant may have a negative experience as well. Many landlords have found it beneficial to have property inspections regularly in order to preserve both the property’s value and the tenant’s trust. Roof’s Age Even with the highest quality materials, a roof still has a shelf life. Most roofs in Long Beach, CA, use asphalt shingles, and these generally last around twenty to twenty-five years. Once they've passed this threshold, the faults begin to show themselves. A sagging roof line is a sign that your roof is due to be replaced, as it's a serious concern. It often indicates that moisture has entered the underlying decking and caused some structural damage. From ground level, you may not be able to notice these problems. However, during an inspection of the property, an experienced inspector should be able to notice soft spots or contours on the roof. These forms of damage often get worse over time. Coordinating these inspections and preventative maintenance can be difficult for landlords with an extensive portfolio, which is why many enlist help. Shingle Damage Damaged shingles are one of the most obvious signs that your roof is deteriorating. If you ever notice cracking, curling, or patches with missing shingles, the roof is no longer providing adequate protection to your property. Although you can buy time with spot repairs, if the entire roof shows signs of damage, it’s likely time to replace the roof. Aside from protecting your property, the roof affects your property’s curb appeal. A patchy and worn-out roof can drive down the rental appeal. Prospective tenants will easily be able to spot the differences between pictures taken in the listing when compared to the property in person. This can not only hurt your chances of filling a vacancy, but it can also hurt your reputation as a landlord. Granules in Gutters After heavy rainfall, it's a good idea to inspect your rain gutters. If you or your property manager notice large amounts of black or gray granules, it means your roof shingles are breaking down. These granules are critical for shedding water off the roof. Once the granules fall off the shingle, the shingle begins to degrade faster under the sun and elements. If you’re not sure how old your roof may be, Loss of granules can be a strong indicator that your roof is nearing the end of its lifespan. Regular gutter cleaning and roof inspections can help catch these problems early before they become expensive repairs . Increase in Utility Bills Your tenants complaining about their utility bills increasing or poor temperature control in the rental may not realize the roof is to blame. A failing roof can result in subpar insulation and ventilation. This can lead to higher heating and cooling bills for your tenant. This can be frustrating for your tenants while putting more strain on the HVAC system. This puts more wear and tear on your HVAC system. Being aware of the warning signs and being proactive can protect your rental property, maintain tenant satisfaction , and avoid emergency repairs. If you need help inspecting your roof or you need help managing your Beach City rental property, we invite you to call us today at (562) 888-0247 or complete our Owner Application online .
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