Rental properties in Charlotte, NC, can provide passive income opportunities and numerous tax benefits. But the day will likely come when you want to sell. Perhaps you want to invest in a different property or retire altogether. Whatever your reasoning, you should sell rental property only after understanding how to protect your current and future wealth.
5 Things to Know Before You Sell Rental Property in Charlotte, NC
1. How to Defer Profits
Imagine you bought a rental property for $200,000 and sold it for $350,000. You also claimed a depreciation total of $50,000 on your tax returns over the course of owning the property. This depreciation increased your taxable profit, meaning you now owe capital gains of $200,000. We arrived at this figure by subtracting the adjusted cost basis ($150,000) from the sale price ($350,000).
The good news is you can roll your profits into another rental property and avoid paying taxes on your gains. The process of simultaneously selling one investment property and purchasing another is known as a 1031 exchange. If you don't sell and purchase simultaneously, as in you delay buying a second property, a professional tax preparer may advise other ways you can reduce your tax debt.
2. The Health of Your Local Real Estate Market
It's impossible to predict future real estate prices in any community, including Charlotte, NC. But you can review specific factors to identify the best time to sell. To illustrate, local employment rates can speak to the health of your area's real estate market. Compare the current employment rate with previous months and years. Generally speaking, low unemployment rates mean people can take on new expenses, such as those relative to an investment property.
Also look at the rate of new construction in your area. Building projects often move proportionately to real estate prices, meaning they rise and drop in tandem. If you see a lot of new construction, now might be the ideal time to sell.
Time Is of the Essence
Over time, however, the combined effects of new properties entering the market and spiking prices will create a bubble that must sooner or later pop. In other words, you should sell before the market becomes saturated with high-priced properties.
In addition, you should consider the number of houses for sale in your community. All factors being equal, it's best to sell when fewer properties are available. Rental properties tend to sell more quickly in this environment. And, finally, pay attention to rental rates. Investors want rental properties in times of low vacancies and high rent payments.
3. How to Reduce Your Property's Expenses
You can improve your property's value and cash flow by reducing its expenses. This requires planning before posting your property for sale, but the effort can make your property far more appealing to the next buyer.
To illustrate, you should shop for new insurance to ensure you're getting the best value possible. You might also reduce utility costs by installing modern appliances and insulating your property. Such upgrades involve upfront costs, but you'll enjoy a higher return when you do choose to sell.
4. What Comparable Properties Recently Sold For
You may have a very valuable property on your hands, especially if you've owned it for a number of years. But overpricing may cause it to sit unsold for months. Likewise, overpricing a property leaves money on the table.
You can avoid both scenarios by digging into the details of comparable market analyses (CMAs) provided by your real estate agent. CMAs can help determine your property's real worth. In short, these analyses allow an agent to choose the appropriate listing price for your property and help buyers skillfully evaluate asking prices.
Seeing Is Believing
You may also want to visit comparable properties that have recently sold. You need only ask the current owners if you can quickly walk through their property. Most are happy to oblige, especially if you have an experienced realtor at your side.
These visits can help you see the upgrades your property might need to fetch the price you want. Keep in mind that necessary repairs, including leaky faucets and creaky doors, are often tax-deductible.
5. How to Appeal to Investors
Before you sell rental property, it's important to understand what investors want. Some prefer occupancy to empty units. Others may want total vacancy so they can perform remodeling. The point is your listing should include information all investors care about, including:
The monthly rent you charge
The average stay of a tenant
Whether utilities are paid by you or the tenant
If your current lease agreement includes necessary security deposits, licenses, or other permits
If you do need to show your property with current tenants, you might offer incentives in exchange for keeping the property looking its best. Gift cards or rent discounts also help motivate tenants to cooperate with the sales process.
It is very possible to sell your rental property without losing time or money. Gauging the current real estate market, as well as reducing your property's current expenses, are two crucial steps in the process. For more help, and to sell your property more quickly, contact Better Path Homes today.