Investing in real estate is typically done for the long-term. Most investors don’t have an exit strategy. In addition, real estate holds a lot of sentimental value that further defers people from making the right sell decision. This post covers a few situations and will hopefully help you figure out when it’s time for you to sell your real estate.
To clarify, this advice is for those who’ve invested in property outside their own home. The types of real estate investments I’m talking about are second homes, vacation homes, rental units, and timeshares.
Here are the questions to ask yourself in order to help you decide whether or not to sell your real estate.
Am I Making Money?
Most real estate investments are for either pleasure or profit. Some are for both. You should know exactly how much money your investment is making before you make the decision to sell. You should also factor in the future of your property. Will your rent go up? Will the property value increase more than your property taxes? Will your maintenance costs soon be eating into your profit? Are homeowner or timeshare dues increasing? Sit down with a spreadsheet and map out all your costs to find out if you are really making money. The more money you make the less reason to sell. The more future expenses you see, the more reason to sell.
How Much Could I Sell My Real Estate For?
Many real estate investors have no idea how much their real estate is worth. Some believe their property is worth double what it would sell for on the open market. Some value it at what they paid for it. Some investors, like timeshare investors, don’t even know they can sell their timeshare on the open market. Do some research online or ask a real estate agent to give you a free valuation to find out what your property is really worth.
Could the Money Be Better Spent Elsewhere?
Opportunity cost is the number one concept when it comes to investing. You have to think what you could do with the money tied up in your real estate. If you are earning 5% on your rental property but could earn 15% on a new property or on another investment, then you should sell your property and invest it in the higher return. Of course you have to take transaction costs into account when it comes to real estate. A lot of real estate investors have tens or hundreds of thousands tied up in properties that aren’t making any money, or that are costing them money each month. You must think about where else that money could be invested and use it to make your decision on whether or not to sell your real estate.
Am I Fooling Myself?
Many people fool themselves into making poor decisions. If you want to make the right decision make sure you are not justifying the answer you desire with information that doesn’t make sense. Use facts and dollars to justify your decision. You may think you are making money on your rental because you get a rent check each month, but you may be completely underestimating the time and money you are putting into the endeavor. Or maybe you’re thinking of your vacation home or timeshare and feeling positive about it because of all the great times you’ve had there. But maybe in reality you hardly ever use it and it would be a better financial decision to sell. Don’t fool yourself with emotions. Look at the facts!