7 Lessons From Selling 9 Rental Properties in 18 Months

It’s amazing what you can learn from selling nine of your rental properties in a fairly quick time frame.

But before I get into those lessons, some background on why I sold so many properties.

Dealing with a ton of rental properties can be overwhelming at times and when many of them are rooming houses with individual rooms rented on a weekly basis you can find your schedule no longer belongs to you.

That’s part of the reason my wife and I decided it was time to divest a bunch of properties. We also had a plan to potentially sell everything and move to a tropical Central American country, but kids hoping to finish high school, other projects that weren’t going to get finalized anytime soon and aging parents has put that on hold.

Yet we still needed to free up that time and we had a few items all coming together. We had several partners that wanted out, the market was reasonably stable (at least when we started selling, it started to drop shortly after we put plans in motion which was another reason to hang onto the remaining properties) and frankly the rooming houses were burning me out.

With over 30 weekly rental units at the time and a string of stressful problems all at once ( a fire, two evictions, a criminal and several deadbeats) my time was never my own and my mood would bounce all over the place depending on which problem or challenge I was dealing with.

In the grand scheme of things, I still love rooming houses. They are a fantastic way to amp up your monthly cash flow, you’re able to help a ton of people who may not necessarily have other options and it’s an empowering experience to be able to help so many people.

But as I also say, try to limit your operations to five to seven years to preserve your sanity, I was at 13, almost double what I warned others about!!

So the decision was made to cull the wheat from the chaff (we decided to sell the worst first…or at least the ones with mortgages coming due, the ones that caused too many headaches or had partners who needed out).

If you’re contemplating selling any rental properties yourself you might want to also check out this article to help you make an informed decision, How to Decide When to Sell an Investment Property.

There’s the background, now for the lessons!

Lesson One

Time your sales around mortgage due dates.

Now depending on where you live there may not be penalties for breaking mortgages early, but in most places if you break that mortgage contract you could be on the hook for a few months interest payments or the entire potential interest rate differential the lender is losing out on which can be significant if it’s early in a mortgage.

I’ve previously paid as much as $17,000 in penalties for a $500,000 mortgage with over a year remaining and trust me, it’s painful!

Again, know what penalties you may be stuck with for your particular financing before you move forward with starting to sell, it may mean the difference between profiting or losing money.

Or if you’re aware you’ll be selling in a year or two, either time your renewal to coincide with that timeline by shortening the term (one, two or three year term) or utilizing a mortgage with a lower or zero penalty (variable or adjustable rate mortgage often have smaller penalties or open mortgages have no penalties but trade that privilege for higher interest rates).

Lesson Two

Get your rental property into top notch shape before you sell it.

This is basically the same advice you would follow before you fill a vacant property. You want to get it painted, patched and cleaned so it shows well and it sells faster.

If you’re emptying the property of tenants the longer it sits empty the more money comes directly out of your pocket, so why not put that money right into the property to sell it faster, and typically for more.

People don’t want to buy someone else’s problems, unless they can get a significant discount, so leaving marks on the wall or having a dirty home will only cost you money. Lot’s of money!!

If there are obvious deficiencies get them fixed and use it as a selling point. Hopefully you’ve made money over the time you’ve owned the property and hopefully you’ve set a portion of that aside for just this day. Especially if you’ve been planning on selling it in advance!

We’ve replaced decks, replaced roofs, redone bathrooms and kitchen counters to update properties. We also repainted almost every property we sold (more on the ones we didn’t in Lesson Four) to make them brighter and shinier!

We’ve replaced screens, hand rails, kitchen handles, we’ve brought in lawn maintenance to upkeep the property and to eradicate weeds and we’ve hired cleaners to get the properties spic and span. While hard to measure the direct impact we’re positive it is why  almost all of our properties we sold were gone within 45 days of listing them (one took 70 days as the initial purchasers had their financing fall through and we had to re-list and our most expensive property took longer due to the market conditions).

The impact became most obvious when we watched similar nearby properties languish on the market well past our close date even though they were listed well before ours!

Lesson Three

Do your own pricing homework!

If you know you’re selling shortly start watching the market, especially for similar properties in the same area.

It’s very easy to have your Realtor set up an automated update system for you where you get notified of all the listings and sales for equivalent properties around you. I even have my Realtor automatically send me listings for similar properties to my personal residence and remaining rental properties so I can understand what’s happening with prices for those properties.

When it comes time to list you should know exactly what you should be able to sell the property for rather than depending on a Realtor to inform you of it’s value. If you’re really investing in Real Estate you should have a good idea anyway and this just helps you avoid getting led down the garden path by someone telling you about unrealistic selling prices just to get a listing.

Now I’m not saying all Realtors will inflate the potential selling price to get the listing, but it’s a common tactic of some just so they can get that prized listing. You simply need to be smart and not get caught in that trap.

If the Realtor has to lower the price a couple months later it only affects their commission by a few hundred dollars but it’s cost you multiple thousands in carrying costs. You have the most skin in the game when it comes to selling this property so make sure you know your numbers.

Some additional caveats that you also need to be aware of is to check your emotions at the door.

This is more typical of people selling their personal homes, but even investors can get emotional about their rental properties and this can cause them to artificially inflate the asking price above what it should be. And this can work both ways as you may see it as “just a rental”.

If your Realtor comes back with a price much lower or much higher than what you came up with, be sure to get all the facts from them as to why they believe this and balance it against your homework. Maybe you’re missing something important because you’re simply to close to the property.

Lesson Four

Let everyone know you’re selling your rental property!

Why would you keep it a secret? Tell other investors, tell your friends, tell everyone!

Who knows which of your contacts, or even contacts of theirs, might be looking at rental properties or that possibly have a friend looking for a home in that area?

In lesson two I talked about updating and renovating your rental properties and I mentioned I didn’t do that with some. That’s because I sold them directly to other investors as turnkey properties.

They were looking for rentals and mine fit their needs so voila. I may have taken a slightly lower price as there wasn’t Realtors involved, but it went quick and easy and provided a great solution for both parties! So word of mouth does work!

At a recent seminar I attended the presenter asked us if we knew what people who invest in Real Estate secretly are. His answer was broke and it was because they miss out on the best deals as no one tells them!

The message from that was don’t keep it a secret and let everyone know.

Lesson Five

Leverage your strengths.

This one can be tricky, as everyone’s strengths are different, but in my case one of my strengths is marketing. So I wrote all the ads for the properties listed on the MLS.

If you’ve owned your property for any length of time and have been writing your own successful ads to fill vacancies you should be able to provide input that can help position your property to it’s best.

If your tenants all rave about the beautiful views from the deck or the nearby schools or the proximity to amenities the sales copy you or your Realtor provide should include that as well.

Simply leverage the positives and the benefits of your property to the best possible results in order to help sell that property for you as quickly as possible.

And it doesn’t end with marketing (well that depends on who you talk to as many people will tell you everything revolves on who you market). If you and your wife love gardening leverage your abilities to beautify the curb appeal.

If you have an eye for design (my wife’s an interior designer by training) leverage those abilities and skills.

Simply use your talents to benefit yourself and to help expedite the sale of your property.

Lesson Six

Ditch the emotions.

I touched on this in lesson three when referring to pricing your property, but you also have to take this into account when negotiating.

Someone will try to low ball you at some time. Don’t take it personally. Either move on or counter with something more reasonable and with a response that you won’t continue to negotiate unless they move up substantially.

Many investors often start with a lowball offer in order to negotiate down halfway between the listing price and their low offer, don’t get caught in that negotiating trap. If you’ve done your homework properly, understand your market, fixed up your property and are basing everything off business decisions versus emotional decisions someone will likely appear willing to offer you a fair price versus a discount price.

It can help to establish ahead of time what your lowest possible price will be and any timelines you have to work within. Perhaps you’ll take a slightly lower price if they close in 30 days, but if it looks like 90 days you’ll be stuck with several extra payments so you need a higher price.

If you know these numbers ahead of time you’ll be able to position yourself for a win during negotiations versus a disappointment.

Lesson Seven

Have a plan.

Once you start down the course of planning on selling your investment property, what’s your plan? Are you putting the money in a new investment? Will the loss of cash flow affect you going forward and/or will you be able to replace it or survive without it?

In our situation we used the profits to get rid of a bunch of debt. We paid down some other mortgages, paid out some second mortgages, bought partners out and repositioned ourselves to be in a better equity position going forward. Plus I freed up a ton of time allowing me to focus more on articles like these and other ventures!

Depending on your unique situation will the sale trigger tax implications? If so, what are your options?

If you’re in the US if you reinvest back into more rental properties you can defer any tax (please confirm this with your accountant as your specific situation could differ from my experience), if you’re elsewhere do you have deductions to offset the taxes?

Sure it’s great walking away with a $200,000 check from closing, but if you have to give $100,000 back to the government for taxes it takes a lot of the thrill out of it. If you’re not sure how it will affect your tax situation talk to a tax accountant to make sure you take the necessary steps to pay the least amount of tax you’re legally responsible for.

Bonus Lesson

Empty your property of tenants.

But I’ll be losing out on rent each month and I’ll have to pay the expenses out of my pocket while it’s vacant!!! That’s the typical response I get from people when I tell them to vacate the property and it’s true.

The problem is if the tenant isn’t too excited about the opportunity to move once the property is sold or they want to sabotage the sale they have numerous different ways to turn your cost saving strategy into a nightmare.

This could range from little measures like leaving the place a mess which can reduce the dollar amount of any offers. They can make it difficult to show the property by blocking or denying showings for various reasons.

But those aren’t the worst. Perhaps the most devious tactic is stalling their move out and blackmailing the landlord in order to move out on time. If the buyers are expecting vacant possession and the tenant is still there you could be in brach of the sales contract at worst or you could end up with a delayed closing costing you more money.

It’s simply better to take this type of situation out of the equation. Especially if you’re not selling the property as an investment property and it’s likely the new owners will be living there.

Much like timing your mortgage coming due if this is your plan you’ll want to make sure your leases line up for this strategy as well. It may also help if you understand the local rules for terminating leases and what reasons you can use to terminate such a the sale of a property.

If it is being sold as an investment you may be able to keep the tenants in place, but you’ll want to be upfront with them and make them aware you’re hoping to keep them in the property in order for an easy transition and if they help with showings it will go a long way to letting them stay.

Of course if I was buying someone else’s rental properties I’d be wondering why they were getting rid of them. So you better have a valid reason, you’ll want to have all the necessary documentation like rental agreements, walk throughs and even tenant files that you can provide to pacify potential investors.

As a side note, just because it’s vacant doesn’t mean you shouldn’t do some minor staging. A few hand towels in the bathroom along with hand soap, vases, knick knacks and ornamental items on the kitchen counters and even some small furniture pieces can all help fill empty space in a property and make it more appealing. 

Selling Your Rental Properties Fast Is Key

We should all be aware extended vacancies are the fastest way to fail as a landlord, the same can be said about extended listing periods.

You’re stuck with all the expenses and none of the benefits once they’re vacant so why would you want to drag it out? Selling your listed rental properties as quickly as possible can solve that problem, but as I’ve gone over in the above lessons, there is work involved on your behalf.

The best and the most successful Real Estate investors with the best rental properties are also the most prepared so use my lessons to help prepare your self and make the future sale of any of your rental properties an easier proposition!

To wrap it up, what are your thoughts? Do you agree with this, disagree or better yet have something to add that I may have missed.

Take a minute and share your thoughts by leaving a comment below to help out the landlord community and if you found it helpful be sure to share it on Facebook, Twitter LinkedIn and more using the handy social media sharing buttons below.