When To Sell Rental Property In Retirement


Which Is Less Risky

When to Sell Your Rental Property in Retirement

Property price growth has slowed in recent years, making buy-to-let riskier than it has been in the past. If you have a mortgage, you could be left in negative equity if house prices fall, meaning youve paid more for the property than its worth.

Turn to pensions, some defined benefit schemes in the private sector have come under scrutiny recently. The collapse of firms including construction giant Carilion and department chain BHS and the resultant effect on their pension funds has led many people to question whether their pension schemes are as safe as they once thought. Fortunately, pensions are protected. However, if your employer goes bust before you retire and you have a final salary pension, you may lose 10% of your pot.

If you have a defined contribution pension, it wont be affected even if your employer goes bust, as its not connected to them in any way. It can lose value if the stock market falls, but over a long period its growth is likely to be positive as likely as property growth, anyway.

Are My Monthly Housing Expenses Increasing Too Much

Even if your home is fully paid off, you can expect your housing expenses to continue to rise with increasing prices for home maintenance, and continual increases in property taxes and insurance.

According to a recent survey from Cinch Home Services, nearly half of U.S. homeowners report that home maintenance costs were higher than expected. Additionally, data provided by Angi shows home maintenance costs nearly doubled from 2019 to 2020 alone.

Hanging onto your home may increase your housing expenses beyond your comfort limit.

How Do I Make Money From A Rental Property

This one seems like a no-brainer: you make money by collecting rent. But thats not the only way.

There are two different ways that rental properties are benefiting your retirement plan. First, youll get a little monthly income by charging more in rent than youre spending on the mortgage, maintenance, taxes, insurance and other expenses.

When you have a rental property, that income keeps going up every single year because rents are typically raised once a year. You dont have to raise them of course, but most rental rates increase 3% to 5% annually to keep pace with inflation, says Korb.

The second way youre making money is in the value of the house itself. Not only are you building equity by paying down your debt with every mortgage payment, but the property itself is appreciating over time.

I make way more money on appreciation than I do on cashflow, advises Behringer.

Ive got 68 houses right now, and each is worth around $200,000. If you add them up, they were worth $12 to $13 million last year. Then apply a 5% appreciation to that number, and those properties appreciated more than half a million in a year.

Thanks to the IRS, theres arguably a third way to make bank on a rental propertywith a depreciation deduction.

You see, although the land itself appreciates over time, the house itself actually depreciates in value due to wear and tear.

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Funding Your Retirement And Other Renting Benefits

If youre wondering if you should sell your house and rent when you retire, thatll depend on whether you need to tap into your home equity, and how much money you have available.

The average American would find this to be a good strategy as they have roughly twice as much value in home equity as they do in other savings.

Choosing to sell your house and rent when you retire means you can utilize your most valuable asset and save on housing-related expensesHOA fees, property taxes, home insurance, maintenance costs, utility bills, etc.

You can also take advantage of tax breaks as long as youve lived in your home for the last two out of five years. Youll be able to exclude up to $250,000 of the profits from the house sale if youre single and up to $500,000 if youre married.

So, if you want to sell your house and rent in retirement for a better cash flow, then be on the lookout for when the market is most favorable to sell. The extra money from selling might also enable you to delay starting social security until youre 70, for the highest possible benefit.

Before we move on, lets recap the main pros and cons of renting to make the should I sell my house and rent in retirement question easier to answer.


+ More retirement funds to live comfortably and invest, for steady monthly income

+ No expenses related to home owning

+ Flexibility to test out new areas without committing


Rent cost might increase over time

Lose your in case of emergency asset

What Are The Cons Of Property Investment

How Owning 22 Rental Properties Can Retire You Faster Than $1M in a ...

Like any financial asset, investing in property carries risk. Burgeoning house prices have often produced a great return, but this isnt guaranteed. When working out the rental yields you could expect from a property youll need to consider the costs such as maintenance, repairs, insurances, tax and other fees. Capital growth how much the property is likely to be worth when you come to sell compared to what you paid for it is also an important factor.

Liquidity may be your biggest problem that is, how easy it is to get your money out when you need it. Selling a property can take many months, so if you are relying on the proceeds for your retirement then youll need to plan well in advance. Youll also need back-up plans in case sales fall through or the .

If youre planning to fund your retirement from rents alone, bear in mind that these may not be enough to bring you the income you need, especially if you still have mortgages to pay on the propert. Also bear in mind that being a landlord isnt an easy job, and you may not want this responsibility as you grow older. You can of course get an agency to handle most of it, but this will eat into your income.

Property also isnt very flexible. You cant just put an extra £10,000 or so into property it forces you to invest in chunks of many tens or even hundreds of thousands of pounds. This can limit your ability to expand your portfolio, unless you are already very wealthy.

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What Is Cap Rate

Cap rate is a calculation used to determine an investment propertys profitability. A high cap rate would happen if you purchased a property for a small amount of money but you rent it for a high price. High cap rate is usually indicative of a good deal. What is considered a good cap rate depends on where you live. In a large city with high rental costs, 4% can be considered cap rate. In rural areas or regions with lower rental costs, a cap rate can go as high as 10%.

Rental income should increase faster than your operating expenses, which would raise your cap rate over time. But sometimes cap rates fall, and investors consider selling.

So When Should I Sell My Rental Property

The above situations should help you decide to either sell or not sell your rental property. Note that the decision is not always in your hands. Sometimes real life estate market trends such as a drop in property value, high taxes, high repair costs, and rental prices drop will force you to let go of your investment. If you’re making losses instead of gains, then this is no longer an investment.

You should also understand that every property is different, and the best way to handle things is to understand your goals. In some cases, investors purchase properties with plans of having one or two tenants before deciding on selling and moving to another property. Other investors look to exit the entire investment after a set number of years. Some choose to hold on for long-term goals — such as retirement or buying another property instead of selling it off. So what are your investment goals?

If you decide to sell, SimpleShowing will help you do it faster and move on to your other commitments. Get in touch with us today! We’ll let’s help you sell more quickly and at at a reduced price with our 1% listing fee. Take our free home valuation to get started.

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Reasons To Sell Your Home In Retirement

There are plenty of reasons to put your home up for sale when you retire. Typically, this strategy begins by selling your home. Then, you have several options ranging from moving in with family, buying a smaller home, moving to a lower cost of living area, or converting to a renter. Here are some of the potential benefits you’ll receive by selling your home:

Want To Sell Your Rental Property

Sell rental property in retirement or keep the income?

During Americas Housing Crisis, many people decided to become residential real estate investors. With so many foreclosures purchased and renovated to be rented out, investments made up about 1 out of 3 home sales in 2011. In fact, 7 million people considered themselves to be real estate investors with a rental property at the time.

Fast forward to 2021, and we have a completely different real estate market. With low housing inventory, low mortgage rates, and plenty of buyers, selling prices are sky high. Real estate investors should consider selling the rental property theyve been renting out.

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I Bought A Condo That I Hoped To Retire Into But That Hasn’t Panned Out And I’ve Faced Some Less

I got lucky with a condo that I bought in Florida, and I really can’t complain too much now that I’m selling it. Yes, I had wanted to retire into it, but that just wasn’t meant to be at this point. Now that I’m selling, though, I can honestly say there are three things that I will be happy to never deal with again.

You’ll Shed Your Mortgage

For many, a home mortgage is the largest financial responsibility they’ll have. Even if you’ve made substantial progress on paying it down, you may still be tied to a high monthly payment, especially considering your income will likely be smaller in retirement. This may especially be true if your mortgage is a variable rate mortgage and interest rates are unfavorable.

When you sell your home, you will be required to extinguish the remaining debt on your obligation to the bank. Though this will eat into the net cash proceeds you take home, you’ll be rid of a long-term liability and will no longer be stuck with the high monthly payment.

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Should You Sell Your Investment Property Before Retirement

Investors who are thinking about selling an investment property before retirement often feel like theyre between a rock and a hard place.

Selling a rental before retirement means giving up the rental income the home has been generating over the years, along with a significant capital gains tax bill at the end of the year. But despite these potential drawbacks, some investors may still choose to sell.

In this article, well discuss some of the pros and cons of selling an investment property before retirement and review some options for keeping a rental property well into retirement while minimizing tax when the investment home is sold.

Key Takeaways

  • There are pros and cons to selling an investment property before retirement, including being able to turn equity into cash and having to pay capital gains tax.
  • Selling a rental property may result in tax on both capital gains and depreciation recapture.
  • Strategies for reducing tax liability when selling an investment property include tax harvesting, forming an LLC, or using a real estate trust for tax planning purposes.

You Eliminate Maintenance Costs

Need Financial Support After Retirement?

Some retirees are worried they may not have enough funds on hand to cover emergencies. In respect to your home, this may entail needing to repair a roof, replacing a broken hot water heater, or managing a mold outbreak. There’s no way to plan for these costs and for some, it’s difficult to envision being able to pay for these costs with limited or no income in retirement.

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Passive Income Idea #: Triple Net Lease Reits

While triple net lease REITs are off to a rough start this year due to rising interest rates, we believe that this picture will reverse itself in the next year or two. A recession appears inevitable for the U.S. economy and will very likely force the Federal Reserve to slash interest rates once again. Once this happens, the defensiveness and high yields of triple net lease REITs will suddenly become very popular, leading to multiple expansion once again.

As a result, we believe now is an ideal time to buy the sector while valuations are discounted and passive income yields are elevated. There are numerous attractive opportunities in the sector with yields ranging from mid 4% for industry gold-standard Realty Income to mid 5% for high quality sleep well at night REITs like STORE Capital and W.P. Carey . Then on the high yield end of the spectrum we get a less proven but still investment grade high yielder like Spirit Realty Capital yielding in the mid 6% range and hospital pureplay Medical Properties Trust offering an inflation resistant 7.3% dividend yield:

Our three top picks in the sector right now are STOR, SRC, and MPW as we believe each is strong enough to weather an economic storm while offering compelling current yield, long-term dividend growth potential, and even some meaningful multiple expansion in the event that interest rates decline once again.

Do I Have Unused Rooms Or Spaces Indoors Or Outside

Weve hit on this a bit earlier, but your lifestyle is changing. This means that your current home may have rooms or areas that go unused and take up empty space. Unused spaces may feel like a waste and create extra burdens for maintenance and cleaning.

Examples of rooms or areas that may become obsolete in your retirement years include:

  • Mechanical areas in your garage

With a properly-timed home sale, you can literally turn these unused areas into cash in your account to better enjoy your retirement.

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Review Your Asset Allocation

Real estate is often considered a separate asset class, or an alternative investment, but it should be considered in relation to other investment asset classes you hold. You may find that, going forward, you want to keep a smaller percentage of your portfolio in real estate. Keep in mind, too, that if all of your investments are in real estate, then all your eggs are in one investment basket. Returns could be very good when markets are going up, but they could become problematic if the market is declining.

Offset Capital Gains With Losses

Should You Sell Your Investment Property? (3 Main Considerations)

By using a tax-harvesting strategy, an investor can offset the gains from the sale of one asset with the losses of another. For example, if an investor has stocks that are sold at a loss, the amount of the loss could be used to reduce or eliminate the taxable gain on the sale of an investment property. If losses exceed gains in a given year, an investor may carry the loss forward to later years.

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Calculate Age Of Appliances

Even if none of the appliances require immediate replacement, some of them might be due for serious repair or replacement over the next few years. If you cant afford the cost of several upgrades, especially if theyre big-ticket updates like a furnace or a new roof, then you might want to sell while theyre still in decent shape.

What Happens When You Sell An Investment Property

Short-term capital gains happen when you sell an investment property you held for one year or less. These gains are taxed as ordinary income. That means you pay the same tax rate on short-term gains as you would on wages from your job. For 2019, there are seven tax brackets that range from 10% to 37%.

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What Are The Pros And Cons Of Renting Versus Owning In Retirement

If youve answered yes to any of the questions above, then downsizing in retirement may be the right move for you. But now, the question comes down to whether it makes more sense to purchase a smaller home or find one to rent.

There are several financial, lifestyle, market, and timing impacts to consider when making this decision. Heres a high-level list of pros and cons to consider:

Pros to selling your home and renting after retirement:

  • Youre no longer tied to a house and a mortgage.
  • Not having a mortgage frees you up to travel for longer periods of time.
  • Youre able to test out potential retirement locales through short-term leases.
  • The burden of home maintenance is no longer weighing on you.
  • Having flexibility in housing options: townhouse, one-level single-family home, or condo.
  • Youll have more funds to fulfill your retirement bucket list.
  • You can transfer equity into dividend-paying investments to increase your income.

Cons to selling your home and renting after retirement:

  • Being dependent on a landlord for repairs and maintenance can be frustrating.
  • Rental costs can be unpredictable and will generally increase over time.
  • The money you spend on housing no longer applies toward an appreciating asset.
  • You may have less space which limits your ability to host family.
  • Your home will no longer be a part of your legacy to pass on to family.
  • It may be more difficult to have pets living with you in your home.

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