Landlord Alert-When Is It Time
To Sell |
By Dave Schneider |
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During the last twenty years of teaching investors about the
benefits of investing in real estate it still amazes me how often
I'm asked when is the best time to sell rental property
My
answer is simple .It depends.
What does it depends on, you
ask It depends on the reason the investor bought the rental in
the first place.
Here are my thoughts about when you should
sell.
If your goal of buying rental property were to provide
you with income, I would tell you that you should NEVER SELL. Why
would you ever sell an asset that somebody else is paying for (your
renters) and when it becomes paid will provide an income for the
rest of your life.
Well, here are the reasons that most
people would sell.
Reason number 1: They are old and sick and
tired of the hassles of dealing with the tenants and the toilets.
All they want is a nice income so they can do the things they want.
If that's what they want, they don't need to sell. You see, once the
property is paid for, they should have enough income from the
property to hire someone or a management company to deal with the
tenants and the toilets. Now they can sit home and just collect the
checks.
The other way you can approach the problem of dealing
with tenants is to be smart about it and set up a system when you
buy the property so that the management becomes an automatic process
that anyone can do.
To do this you need to have step by-step
policies and procedures for all aspects of managing rental property.
All you have to do is to take the time up front to think about all
aspects of management and lay out the steps that need to be done.
Once you done this, you could hire personal assistant for a few
dollars an hour to follow the steps you have laid out.
If you
don't want to do this work, there is a great system that is set up
to make property management automatic and that anyone can do. It's
called The Complete Property Management System and Manual and you
can get it at Landlord-Tools.com. The cost of the complete system is
less than $400.00 and all the steps, policies, procedures and forms
are included in the system.
Reason number 2: The second
reason that people want to sell is to get the money to buy something
else (car, boat, house, another rental, etc.).
Again, if
that's what you want, I still don't see any reason to sell. Why?
Because if you have enough equity in the property, you could borrow
against the equity to buy the things you want.
One of the
things that I like to do is set up an equity line of credit with a
bank on properties that no longer have loans and mortgages on them.
Most lenders will set up an equity line of credit to loan 60-70% of
the value of the property. You don't have to pay any interest on the
credit line unless you decide to borrow the money and you can borrow
at anytime by simply writing a check against your credit line. The
best thing about this is that whenever I need large amounts of
money, I write a check. I never worry about how am I going to pay
the loan back because the rent that I receive from the property will
be used to pay back the loan.
What if you goal of selling is
to buy another (perhaps larger) rental property Don't sell. Borrow
against your current properties. Besides, think about this, the most
expensive part about real estate is buying (because of the time your
spend and the financing costs) and selling (because of the
commissions, closing costs and taxes you must pay). You would be
better off using your properties that you already have to buy more
properties.
There is, of course, an exception to the idea of
never selling. If you think the property will have little or no
value in the future or it's in an area where you no longer want to
own, go ahead and sell.
Also, if you goal was to create cash
by buying it and doing a quick sell to make a profit, that's OK too,
however keep in mind, in this case you really not building any
assets to provide you with lifetime income.
Copyright 2006
David Schneider |
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