Should I Sell My Rental Property?
Owning a rental property–be it a duplex, vacation rental, etc.–has a lot of promise; passive income, diversified investments, and security of your property can definitely have its appeal. However, there may come a time during your rental ownership when the drawbacks of owning a rental seem to outweigh the benefits. If the time comes that you find yourself asking, “should I sell or keep my rental property?” consider several ways selling a rental property could benefit you.
Any rental property can turn into a nuisance and a financial challenge due (but not limited) to:
- Costly periods of vacancy
- Constant problems linked to “the Triple-T Monster”: (tenants, trash, and toilets)
- Lower than desirable financial return on your investment
Even after all these years of holding onto your rental, a once idealistic investment can turn into a limiting liability to your personal and financial freedom. Selling your rental property can make these woes disappear, returning your freedom and allowing you more time to do what you love. Just imagine having more freedom to travel to the next destination on your bucket list, enjoying more time in the great outdoors, or spending more time with those closest to you. However you choose to spend your newly found free time, you will not be missing your headache rental.
Options When Selling a Rental Property
So you’re ready to sell? When you arrive at this decision you come to a crossroads of decisions with two common solutions.
THE OPTIONS:
- Sell your rental property, pay capital gains and depreciation recapture tax, among other taxes, of up to 30%, and use the rest of your earnings how you please.
- Rather than sell your rental property, do a 1031 exchange into a like-kind property, avoid all taxes related to your real estate gains and enjoy passive income for years to come.
Solution one can be costly and causes the seller to miss out on enjoying the entirety of their increase in earnings garnered from the appreciation of their property year after year. However, the second solution is one that can preserve wealth, increase your legacy, and spin-off stable monthly income passively.
Deferring Capital Gain Tax with a 1031 Exchange
The primary reason to opt for a 1031 exchange is to defer capital gains and other taxes related to gains on selling rental property. By exchanging into a like-kind COMMERCIAL property that meets certain criteria (i.e. single-tenant, NNN leased, etc), you will own an undivided interest in a hands-off commercial property whose monthly rent will provide you with passive income month after month. 1031 exchanges are very structured and the seller must ensure that they are working with a qualitative intermediate (QI), sticking to certain deadlines, meeting identification criteria, etc. For more information, read more here.
What to look for in a commercial investment property
As previously mentioned, owning commercial property yields all the benefits of owning real estate without the hassle of being a landlord. Even so, not every commercial investment property is created equal. In order to ensure that a commercial investment is indeed going to be a stable, hands-free property, we suggest finding one with at least 3 out of the 4 the following characteristics:
- Single-Tenant
- NNN Lease
- Long-term lease
- Corporate Guarantee
Summary
At Millcreek Commercial, we always have properties in our inventory that meet such criteria and are ready for immediate identification so that interested parties can use them for their 1031 exchanges and purchases. In our years of experience, we have seen that such properties are the perfect solution for the landlord ready to be rid of their headache rentals, saying goodbye to the triple T monster (tenants, trash, and toilets). If you find yourself looking for a way to discover freedom, enjoy passive income, or even just taking the first step into the commercial real estate market, we can help make your process smooth and hassle-free.
