Consider These Issues Before Selling a Rental Property

For most people, the goal is to own their own home; however, some lucky people find themselves owning a rental property as well! If you do own a rental property, have you ever considered what to do when the time comes to sell? You might think you can sell it the same as any other home, but in reality selling rentals is somewhat more complicated than a typical sale. If you aren't careful, you could land in hot water, so consider the following issues before diving into the process.

Check for Right of First Refusal

In some situations, landlords looking to sell their rental property are required to inform their tenants about the sale price and other information and allow them an exclusive window of time in which they may place an offer. Afterward, tenants are sometimes allowed to match any offers received on the property. This process is referred to as the "right of first refusal" and usually appears in the form of a lease clause or separate contract.

Consider Rent-to-Own

If you can't find someone to buy the property outright, or have a tenant who is interested in buying but can't raise the down payment, rent-to-own could be a good solution. These type of agreements can vary greatly from situation to situation, but typically involve a set time period during which the tenant will pay rent plus additional money toward the purchase price (25-50% of rent per month). If you are looking to offload responsibility for the property immediately, add in a clause that makes the tenant responsible for repairs and maintenance. Regardless of the terms agreed upon, be sure to hire an attorney to make the entire contract legally binding.

Rental Sales Incur Capital Gains Taxes

Rental properties are considered investments, which means that you must pay capital gains tax (around 22%) on any profit made from the sale. The taxable amount equals the sale price minus the adjusted basis of the property. To find the adjusted basis, take the original purchase price and subtract 1/27.5 of it for each year since the purchase. 

You Don't Have to Sell to the Tenant

Although it is certainly nice to sell to someone you already know and who already lives in the home, this isn't always the route that lands you the most profit. In order to maximum your sale price, hire a real estate agent who can help market your property to the widest possible array of buyers. At the same time, don't burn any bridges with the tenant; after all, they can make the sale process much more difficult than it already is!

Source: "Selling a Rental Property? 4 Crucial Points to Consider"