If you’re trying to decide whether now is the right time to sell your Fort Worth investment home, there are some important things to consider. Perhaps you need some cash right away and selling is the only way to get what you need. That’s a good reason to list your home.
However, if your financial situation does not require that you sell right now, consider holding onto the asset. The real estate market in Fort Worth is still working itself out after adjusting to the pandemic realities; you’ll probably earn more in the short and long term by continuing to rent it out and then selling in a few years.
As you’re making your decision and putting together your plans, remember to consult with professional Fort Worth property managers and real estate agents who understand both the sales and the rental markets.
Analyze Your Numbers and Cash Flow
If you have a great tenant in place and you’re attentive to routine and preventative maintenance, you are probably earning more on your rental property than you realize.
The idea of selling right now to make a profit may seem attractive, but take an objective look at your numbers. Look at the cash on cash returns and your capitalization rates as well as any other metrics that can show you what you’re really earning. Even if it has slipped a little in the last quarter, you’re likely going to make that up when you hold onto the asset for a bit longer.
Increasing Property Values
Another good reason to keep your investment property is that the asset is increasing in value. You’ll continue to collect rent even while the property appreciates over the next few years. This is going to provide you with both short term and long term gains, while selling the home will only serve your immediate needs and do nothing for you in the long run.
When you balance your tax savings against your risk in the stock market, you’re likely earning more on your investment than you realize. Equity only builds from month to month and year to year.
Refinance and Save Some Money
Interest rates are at a historic low right now, and it’s likely they’ll stay this way into 2021. If refinancing your mortgage is an option, you should do it right away. You can earn more on the investment property you currently own by holding onto it and negotiating new terms for your loan. The lower interest rate will reduce your monthly payments.
Exchanging Instead of Selling
Maybe the location of your investment property is no longer working for you. There could be some commercial sprawl in the area, making it difficult to attract and retain long term tenants. Maybe your maintenance costs are outpacing what you’re able to earn, and you don’t like the expenses showing up on your accounting statements compared to the income.
That doesn’t mean you have to cash out of the market entirely.
Consider a 1031 exchange. With a 1031 exchange, you don’t have to sacrifice the money you’ve earned on your property. It serves a more effective long-term investment strategy than selling and walking away.
Here’s an overview of how it works:
- When you sell an income-producing property, you need to pay taxes on the money that you earn from the sale.
- If you buy a new investment property – or several properties – that are similar to the one you’re selling, you can defer the payment of those taxes.
This is especially beneficial to investors who would face a large tax bill by selling a property. Let’s say you bought your rental home 10 years ago for $85,000, and you just sold it for $250,000. That’s a huge profit margin, and the money you earn will be taxed.
With a 1031 exchange, you can get rid of a rental property that’s no longer serving your investment goals, but you’re gaining a property (or properties) that can provide better returns.
We hate to see investors leave the market because we know that the longer you hold onto your Fort Worth rental property, the more money it can make for you. Talk through your options with us. Contact our team at Trend Property & Management.