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7 Insider Secrets to Selling a Rental Property

May 2, 2024 2:00:00 PM / by Cole Kelly

Selling a home is already complicated, but selling a rental property brings considerable new challenges. Whether you’re a “mom and pop” landlord or an investor relying on a property manager for day-to-day operations, you probably have concerns about selling your rental. You may need to schedule showings around tenants, worry about potential tenant-related damage, or just be concerned that a huge tax bill will eat into your profits.

To address these challenges and more, we sat down with two rental property sales experts:

  • Sarah Lyons is a top-selling Dallas-Fort Worth real estate agent who has sold more than 500 properties.

  • Eric Hughes is the founder and CEO of Rental Income Advisors, a rental investment advising company.

Below, we outline the challenges you can expect when selling your rental property and provide the keys to selling your property with as little stress as possible.

What are the biggest challenges of selling rental property?

Even if you’ve sold a home before, selling a rental property can feel intimidating — it’s simply more complex. Here are a few challenges you may encounter when selling a rental property and tips to help you overcome each potential setback.

Challenge 1: Managing tenants

Tenants can complicate your selling plans, making it challenging to market properties properly, update units for sale, and arrange showings. Potential buyers may also be wary about inheriting tenants who haven’t been vetted to their standards.

Another challenge of managing tenants during the selling process is addressing residents’ concerns during a sale. To avoid unnecessary disruption, tell tenants what to expect in advance. Give them proper notice, double-check to ensure you’re upholding leasing agreements, and address any worries they have about the sale — if your tenants are onboard, it makes the entire process easier.

Tip 1: Manage your tenant relationships with respect

During a sale, it’s essential to uphold your tenants’ rights. At the same time, you’ll want to avoid passing on tenants that could cause issues for the property’s subsequent owners. Here are a few ways to manage tenants and help maintain positive relationships throughout a sale:

  • Vet tenants thoroughly. Properly screening tenants before signing a lease can reduce the chances of an issue during a sale. 

  • Know your legal obligations. Be sure you’re following local landlord-tenant laws to avoid any legal violations. Honor your lease agreements, give your tenants proper notice before a sale, and respect tenants’ rights throughout the sale process. 

  • Understand your tenants’ rights. According to the Fair Housing Act, you cannot discriminate against tenants based on race, color, religion, familial status, disability, or sex. Other common tenant rights to consider are a tenant’s right to privacy, their right to a habitable living space, and their right to have advance notice before evictions. To avoid legal issues and confrontations, familiarize yourself with local tenant rights or consult with a landlord-tenant attorney.

  • Build positive relationships with tenants. Communicate with your tenants throughout the sale process and address their concerns. This can help them feel supported as they plan for potential shifts in their housing situation. Actively communicating with tenants also opens the door to more collaboration when scheduling showings or inspections. 

  • Offer incentives to move out early. If you want to vacate your spaces before a sale, consider incentivizing your renters to move out before their lease ends. That may include offering rent reductions or penalty-free early lease termination agreements.

Tip 2: Don’t expect to sell a property that’s trashed

If you had to evict a tenant from the property you’re selling — or a tenant left the property in bad shape — you may be tempted to cut your losses and sell the property as-is. However, Hughes says that’s a big mistake. 

“A lot of people will just be like, oh, let's pull the plug. Let's get it sold. I don't want to put another dime into it,” he explains. “That just doesn't work because it's very hard to sell a property in bad condition, and you're just going to give up a lot.”

Instead, he suggests hiring a professional to identify what updates need to be made. Then, he suggests rehabbing the property to renting standards before putting it on the market. 

Challenge 2: Making the right pre-sale preparations

Since you’re renting, you may not have complete control over the condition of your property. Tenants don’t have the same motivations to keep the property in pristine condition that you might. That can force you to ask yourself difficult questions when it comes time to sell, such as: 

  • Should I just scrap a damaged property and sell it as-is?

  • How do I know which repairs are worth making?

  • What updates can I make to maximize my ROI?

Tip 3: Determine who your ideal buyer is.

Before putting your rental property up for sale, deciding what type of buyer you want to attract is important. In general, people who are selling a rental property usually target two types of buyers:

  • Owner-occupants

  • Investors

Lyons says there are advantages to selling to an owner-occupant who will live on the property. 

She explains: “Typically, the highest return on investment if you're selling a rental property is to sell it to someone that's going to end up in it, because they're willing to pay a higher premium versus someone who's buying it as a rental property, where they're just looking at the return on investment, and typically, their numbers are going to be tighter.”

If you plan on selling to an investor, Hughes says the preparation and marketing process will differ.

“Selling a rental property is like selling any other property, except you’re marketing to investors,” he says. “So you have to make it appealing to investors, get inside the investor mindset, to sell it effectively.”

Hughes says two strategies hit the “sweet spot” when you’re selling to investors: 

1) Sell your property empty. With this strategy, you’ll want to market your property as a vacant space in excellent condition. Clean the property thoroughly, make cosmetic repairs, and highlight the space’s earning potential. 

2) Sell your property with tenants already in place. If you choose this strategy, emphasize your tenants’ reliable payment histories, the ease of managing current renters, and the buyer’s potential rental income.

Tip 4: Stage your rental property to appeal to your buyer.

Are you wondering how to best stage your rental property? It depends on who you’re selling to. Staging for investors is wildly different from staging for buyers who will live on the rental property. 

If you decide to sell to an owner-occupant, Lyons says to stage similarly to how you would if you were selling to a traditional homeowner. 

When you stage for a traditional residential home sale, the goal is to set up your home in a way that makes it easy for a potential buyer to picture themselves living in it. That usually means deep cleaning the space, decluttering rooms, cleaning up the lawn, and arranging furniture in a visually pleasing way. Place light artwork on walls, towels and soap in the bathroom, glassware in the kitchen, welcome mats at your entrance, and other neutral decorations throughout the property to make it feel like a home.

However, if you’re selling to investors, Hughes says you may want to skip staging altogether. 

“I would say it's quite a bit different just because you're playing to a different audience,” he explains. “They're never staged. There's no point to it. Buyers aren't going to be impressed by that. It's a different vibe.”

When selling to investors, instead of adding artwork, furniture, or other traditional staging touches, Hughes says to make simple, low-cost tweaks that showcase your rental property’s condition. He suggests doing light landscaping, touching up the yard, and cleaning the space’s interior. It’s also a good idea to repair any broken items, fix leaky faucets, and maximize natural light to highlight the property’s potential appeal to renters.

Tip 5: Make updates that attract the most potential buyers possible.

If you’re selling a rental property, it can be challenging to know what updates to make — and which repairs to bypass. As a general rule of thumb, Lyons says to make simple updates that draw in the most potential buyers possible. 

Here are a few simple repairs she suggests making:

  • Use neutral color palettes.

  • Do a deep clean.

  • Clean windows.

  • Repair window blinds.

  • Make sure the light bulbs work and match.

  • Fix chirping smoke detectors.

  • Clean dirty AC ducts.

Challenge 3: Navigating taxes

Taxes are another common concern for rental property sellers. If you don’t know how to manage taxes, you might be hit by a large tax bill that cuts into your profit. Before you start your property sale, identify:

  • How much tax will you owe when you sell the property?

  • What taxes are unavoidable?

  • Are there tax exemptions you can take advantage of to increase your final profit?

Tip 6: Get a professional’s help when navigating taxes.

When selling a rental property, you may owe capital gains taxes on the profit you make. According to the IRS, you can identify your capital gains by subtracting your cost basis, or the original price of your property plus the improvement you’ve made, from your final sale price. 

As of 2024, long-term capital gains taxes, which include properties you’ve held for longer than one year, are taxed at a rate of 0%,15%, or 20%, depending on your filing status and income level. Short-term capital gains, or gains on properties you’ve held for less than one year, are taxed as ordinary income. 

Reducing or avoiding capital gains taxes

There are a few strategies you may be able to use to avoid capital gains taxes when selling a rental property:

1. The primary residence exemption. According to the IRS, if the property you’re selling is your main home, you may qualify for a maximum capital gains exclusion. To qualify, you need to have lived in the property for at least two of the five years before the sale. You’re also only allowed to take this exclusion once in two years. 

If you do qualify for the primary residence exemption, you can avoid capital gains on the following:

  • Net gains of less than $250,000 for an individual.

  • Net gains under $500,000 for a married couple.

2. 1031 tax exchange. According to the IRS, you may also qualify for a 1031 tax exchange. Sometimes called a “like-kind exchange,” this exemption lets you defer capital gains on a property when you purchase a similar property in its stead. 

Whether you’re planning on taking advantage of the primary residence exemption or the 1031 tax exchange, it’s a good idea to consult a tax professional or hire a real estate tax attorney before your sale. 

Challenge 4: Hiring the right real estate agent

Hiring a real estate agent is a big decision when selling a rental property. Picking the right agent could be the difference between a fast sale at the price you expect and a drawn-out, frustrating selling process. 

“To me, it's one of the most important things because if you don't have an agent that knows what they're doing, you're leaving money on the table,” says Lyons.

Tip 7: Hire an experienced real estate agent.

Hiring the wrong real estate agent is one of the biggest mistakes a rental property owner can make. Keep in mind that not every agent will deliver the same value during your sale. According to the Consumer Federation of America (CFA), nearly half of all agents sold just one or no homes the previous year. 

Lyons says that’s just one reason it’s essential to hire a real estate agent familiar with selling investment properties.

“This is one of your biggest assets,” she explains. “You want to have a trusted expert. You're not going to want to go to the doctor who only does surgeries once a month. You're going to want to go to the one that has a lot of practice and knows their craft. And it's the same thing with real estate.”

If you’re selling to an investor, Hughes says it’s important to work with an agent who regularly sells to investors.

“Work with an investor-friendly agent to represent you and get that sold because those people will have a large list of investor buyers who they've worked with and can market to,” says Hughes.

Worried about wasting time interviewing real estate agents? Redy’s platform makes it easy to evaluate and choose the best possible agent. When you create a property profile on Redy, agents in your area receive an alert regarding your needs. On your side, you just have to wait for their proposals, terms, commission rates, and potential cash rewards. 

Learn more about how Redy saves you time and money.   

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Maximize ROI on your rental property sale

Selling a rental property comes with its own unique set of challenges, but by following these expert tips, you can navigate the process with confidence. Prioritize tenant management, make necessary repairs and updates, and determine your ideal buyer before listing your property. Staging your rental effectively and hiring an experienced real estate agent specializing in selling rental properties can also make a significant difference in the success of your sale.

When it comes to minimizing taxes, consult with a professional who can guide you through potential exemptions and strategies, such as the primary residence exemption or a 1031 exchange. When it comes to following the law, consider talking to a real estate attorney.

But while these tips can help you overcome the challenges of selling a rental property, there's one more way to maximize your sale's ROI and simplify the process: the Redy platform.

By creating a property profile on Redy, you can connect with top-performing local agents who will compete to sell your rental property by offering you an upfront cash reward. Each agent will provide you with a proposal including a personalized message, their sales history, and a summary of their experience — so you can tell right away who has the right background for your situation.

Unlock the hidden value of your rental property and enjoy a more profitable, stress-free selling experience with Redy. Sign up to take the first step toward maximizing your rental property ROI.

Cole Kelly is a copywriter with more than ten years of experience. His writing includes PR, magazine features, content marketing, website copy, conversion paths, and emails. He specializes in writing for real estate, technology, SaaS, and manufacturing companies. 

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