Got Tenants? How to Ease Out of the Landlord and Property Management Industry
Take a hard look at your options before you jump out of real estate investment.
With the current state of tight housing inventory and high demand, if you’re a small-time investor with a portfolio of properties, you’re likely sitting pretty with little vacancy and steady rent.
Whether you’re looking to cash in while things seem to be hot or you're simply ready to be done with the business, you might want to retire from the world of real estate investment.
Before you quickly offload all your single-family homes, weigh your options carefully. After all, both rents and home prices have climbed as construction of new homes continues to lag demand. “It’s a safe time to invest in real estate,” says Greg Rand, CEO of real estate investing company OwnAmerica.
The decision should be based on the state of the local housing market, your current situation and your future financial goals. Consider these five options before making a move:
Sell to a resident. Owning a single-family house or condo as an investment has the added bonus of appealing to both investors and individual homebuyers when you want to offload a property.
And if your space is occupied by a tenant, you have a built-in potential buyer right there. It doesn’t hurt to approach your tenant and ask if she has any interest in purchasing the property; if she’s a long-term tenant, you have a good chance of a simple transaction without any need to market the property.
But even without an interested buyer already in the home, you have plenty of resources available to sell the property to a person or family looking to occupy the space.
Rand points out online platforms such as Zillow, Trulia, Redfin and realtor.com are structured to help you easily market your property. You’re even more like to find success with online marketing if you have the tenant vacate, then make renovations and repairs, first, he says. “That machine works really well with a vacant home,” Rand says.
But be sure to follow state laws when it comes to ending a lease or opting not to have a tenant renew to avoid backlash from a wronged tenant.
Sell to an investor. If the work required to fix up a property for residential sale doesn’t appeal to you, or if there’s a lot of time left on the tenant’s lease, you have the option to sell it as an occupied investment.
Like the residential real estate marketplace companies, there’s a growing number of platforms to help real estate investors find buyers, including OwnAmerica, Roofstock and Investability, whose chief revenue officer, Dennis Cisterna, is a U.S. News contributor.
Particularly if your investments are located in a city or neighborhood where the percentage of renters is relatively high, there is a good chance you’ll find an interested buyer in little to no time.
But location and current trends in your local market are key. For example, if individual homeowners are buying up all the houses in the neighborhood, selling an occupied rental as an investment will likely be a little more difficult, Cisterna says.
Sell the portfolio. Owning multiple rental properties may sound like more work, but it’s certainly possible to find a buyer looking to take on more than one investment, especially if you have records of growing returns year to year.
An important caveat to keep in mind, however, is that the more extensive the portfolio, the longer it may take to sell. “The more properties you have to sell, the smaller your buyer pool,” Cisterna says.
If you’re able to remain flexible, it’s possible to use the number of properties in your portfolio as a good tool for negotiations when it comes to working with a real estate agent. Commission rates are negotiable, after all, and a real estate agent will likely be willing to take a smaller total percentage with the promise of selling 10 properties as opposed to only one, says Lukas Krause, CEO of Real Property Management, a residential property management franchise company with locations across North America.
“That’d be a great way for you to save some money, to negotiate if they can sell all those properties, either individually or as a group, so that you’re able to have more money in your pocket rather than a larger commission,” Krause says.
Refinance. If what you really need is cash, you don’t have to resort to offloading your real estate portfolio as quickly as possible.
“If you need capital, consider refinancing,” Cisterna says. A conversation with a financial advisor or your lender about your options would be a valuable step in determining whether getting out of the real estate investment business is actually the right move, especially if you have more than one loan across multiple investment properties and need to determine the best course of action.
Not to mention, refinancing could be a strategic step for your investments anyway. Interest rates currently remain low, but they are rising. Refinancing to a fixed-rate loan on your investment property could also lock in a lower rate than will likely be available to you in a few years.
But don’t touch your financing if the money you need won’t go toward growing your wealth. Freeing up cash only to spend it and struggle with payments is a bad investment move all around.
Hire someone else. As a relatively small-time investor, it’s completely reasonable if you’ve become overwhelmed with the day-to-day requirements of acting as property manager. If you’re tired of the additional yardwork or having to market for new tenants, you don’t have to sell your properties to make life easier.
Property management companies often work with individual landlords to ease the burden of operations on investment properties and offer industry expertise, typically for between 8 and 12 percent of the property's monthly rental value, according property management services network All Property Management. Krause explains that a good property manager consults with the property owner, takes on the daily rental needs and keeps a bird’s-eye view of the investment for maximum returns down the line.
“If you have a longer-term horizon and align yourself with someone who’s going to advise you on not only what you can command for rent, but even for a resale, [you’ll have a] perspective of reinvesting in the asset rather than just trying to squeeze every ounce of return out of it for the short term,” Krause says.