Examine some indicators to evaluate when considering the next step in your investment property journey
Investing in real estate can be a lucrative business. While holding on to a property in order to ride the inflation wave and reap the benefits of property value appreciation over time is a popular strategy, there may be instances when selling makes sense. There is rarely a clear “right” answer, as every investment is unique--but there are a set of questions and indicators you can consider to determine what makes the most sense for you and the future of your investment property. Let’s explore a few of the most important ones.
Stagnant or Negative Cash Flow
One of the main reasons buyers get involved in the real estate market is the appeal of positive cash flow. Once the costs to operate a property begin to outweigh the income received from it or property value growth becomes stagnant, it may be time to sell. This can sometimes be apparent soon after purchasing a property (renters may not express as much interest as anticipated, for example) or rear its head after years of owning. It is important to constantly monitor this factor, as markets, renter preferences, and property values change over time.
Like the stock market, real estate markets tend to operate in cycles with highs and lows that fluctuate over time. When the market is high, owners may be tempted to sell even if they hadn’t planned to before. If investors miss a peak in the market, they may have to wait years until the downturn passes and the market bounces back to consider selling again.
Increased property taxes can serve as an incentive to sell. Depending on the type of lease owners engage renters in, taxes may be taken out of rental income owners receive (leading to decreased profit) or passed through the tenants (making renters responsible for the higher costs). The impact could prompt landlords to increase rent, which may force renters to look elsewhere. In either instance, higher property taxes can make it more expensive to own, which may be an indicator that it’s time to sell.
Certain major life events or a change in personal finances may warrant a re-evaluation of owning an investment property. For example, if a cash infusion is needed to pay for a major expense like tuition or a medical procedure, it may make more sense to liquidate a property rather than take on debt. Real estate is traditionally a long-term investment, making it one of the most illiquid assets you can have in your portfolio. Financially planning for the future and anticipating if and when you might need the cash from a real estate investment sale may benefit you in the long run.
If you’re interested in investing in Lehigh Valley real estate, contact us today. It would be our pleasure to serve as your Lehigh Valley real estate agents, guiding and advising you through the process.