Your Complete Guide to Selling an Investment Property

Several investment homes located in a cul-de-sac are listed for sale.

Is it time to sell your investment property? Whether you no longer have the time to deal with tenants or simply want to move on to other investment opportunities, selling a rental real estate property isn’t as straightforward as selling a primary residence. Here’s all you need to know about selling an investment property. 

Selling an Investment Property

Selling a real estate investment property might be a bright idea if you’re in a seller’s market. If the prices are high, the profit you earn from the sale proceeds might be greater than the potential profit you would make from long-term rental income and the future appreciation of the property value. 

If the market value of the real estate in the area faces depreciation, either due to rising crime or other reasons, it might also be a good idea to sell quickly. Not only will rental prices go down, but it may be hard to sell your real estate investment for a reasonable price later. 

Property owners also sell rental properties for personal reasons. Perhaps you took on a new job in a new city, or you may be relocating to be close to a family member. 

Can you sell a rental property if it currently has tenants? The answer is yes—many real estate investors will be more than happy with the steady cash flow of a rental home. 

However, if it’s a single-family home with a tenant, you won’t be able to sell to regular buyers who just want a main home to live in. That makes the sale of rental property slightly more complicated, but there are still ways to make the sale of the property easier. 

For example, you can wait until your current tenant’s lease expires and then sell it. That way, both real estate investors and regular home buyers can buy it. 

You can also pay the tenant to leave. If you cover their moving costs and assist them with rent for the remainder of their current lease, they may agree to leave earlier.

For example, if they are paying you $1,500/month with three months left on their lease, and they want to move to a place that costs $1,800/month, you might refund them the $4,500 of rent they paid and give them a bonus payment of $900. 

Alternatively, you can simply pay them a fixed sum. Not all tenants will agree to move, but it’s still worth a try if you are in a rush to make a home sale. 

Important Steps When Selling an Investment Property

If you decide to sell a home with tenants, here are the steps you need to take to attract real estate investors. 

Showing Potential Buyers Who Their Tenants Are 

Any investor considering a rental property will want to know who the tenants are. First and foremost, they will want to know the tenants’ financial situation and how reliable they are. Have they been paying the rent on time, or are they consistently late? 

They will also want to know more about the temperament of the tenants. Are they easy to deal with, or do they frequently complain about small things that cause issues? While not a must, meeting with the tenants can help convince investors to buy the property. 

Being Open About the Property and Local Area

Be transparent about the property and area. If there are any issues with the apartment, such as an outdated plumbing or HVAC system needing replacing sooner or later, disclose that. If the area is inconvenient to tenants because it’s far from groceries, schools, and gyms, make sure the buyer knows. 

An investment home is listed for sale.

Benefits of Selling With Tenants

While we previously discussed several methods to get rid of your current tenants, there’s a downside to that as well. While you may open up the property to a broader target audience – in the case of a single-family home—you will also make it less attractive to your primary target audience, the real estate investor. 

Here are the benefits of selling a house with tenants

Guaranteed Income 

If there are tenants currently on a long-term lease, the property will provide the buyer with guaranteed income. If there are no tenants, on the other hand, they will have to find new ones. The more units there are, the harder that will be. 

Many investors are explicitly looking for rental properties that already have tenants for that reason. They simply don’t want to deal with the hassle of searching for and finding tenants. If you wish to sell a house fast in Pennsylvania, keep the tenants, and you’ll likely close the deal quicker. 

It Won’t Affect Your Sale Price 

Note that having tenants won’t affect your sale price. The property won’t get a higher or lower valuation just because there are tenants currently paying rent. Nevertheless, while you won’t be able to charge more, the property will still be more attractive to investors. Therefore, you will have an easier time closing the deal. 

Tax Changes to Investment Properties 

When you sell an investment property, you have to pay property taxes on the profit you earned from your investment (the difference between the original purchase price and the current sale price). If you held the house for less than a year, you must pay short-term capital gains taxes. If you have owned it for more than a year, you must pay long-term capital gains taxes. 

The tax rate for short-term capital gains is the same as for your ordinary income, depending on your income tax bracket. For example, if your income tax rate requires you to pay 37 percent in income tax, you must also pay 37 percent on your capital gains when filing your tax return. These tax brackets can vary based on the tax year. 

The tax liability for long-term capital gains is either 0, 15, or 20 percent. Here, too, the long-term capital gains tax rate depends on your income bracket. A tax professional can help taxpayers determine how much they owe on capital gains. 

There are ways tax filers can get out of paying capital gains, though. If you don’t want to pay tax on your capital gains, you can offset your capital gains with capital losses. Alternatively, you can invest in similar investment properties under a like-kind exchange

For example, if you sell an apartment building and immediately invest in another apartment building, that usually qualifies as a like-kind exchange. There are specific rules you must follow, for example. You must identify the like-kind property within 45 days and purchase it within 180 days (with the sale proceeds of the original property). 

There is no limit on how often you can do this. So, theoretically, you can keep deferring your capital gains from tax liabilities by doing one like-kind exchange after another. Again, consult with a CPA who has experience in the matter. 

How To Sell a Rental Property

Selling a rental property involves additional considerations, but it’s not as complicated as many think. 

There are ways to sell a rental property without involving a realtor or searching for real estate investors. One option is selling to your existing tenant (if it’s a single-family home). If they have been living there for a while, are comfortable in it, really like the place, and don’t want to move, they may be willing to purchase it. It’s worth asking them because it will save you a lot of hassle. 

Another option is to sell to cash home buyers in Philadelphia. Cash home buyers buy rental properties for many reasons. They may plan on keeping it as a rental property that generates a monthly income. Alternatively, they may plan on waiting until the lease expires and then remodel it and flip it for a profit. 

In any case, there are many benefits to selling to cash buyers. First, you can close quickly and get your cash within two weeks. If that’s not an attractive enough reason, here’s another one: You save on closing costs. 

There are many fees to pay when selling a house, including the real estate agent commission, which will usually run you about 5-8%. You can avoid that by selling directly to a cash buyer or cash-buying company that doesn’t charge a commission. 

Conclusion

We buy houses Willow Grove investors will love. Regardless of why you want to sell your investment property, you can rely on us to make the process quick, straightforward, and hassle-free. 

Start by filling out the online form on our website. Then, we’ll set a time to view the property in person or virtually, so we can give you a fair cash offer. Once you accept, we’ll close on your schedule. That can be right away or in a few months—perhaps you want to wait until the tenant’s lease expires, so you can continue collecting monthly income. 

Finally, we will close at a reputable title company, handling all the paperwork, so you don’t have to do anything. We don’t charge any agent fees, so contact us today to get started. 

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