You can earn a lot from owning an investment property, but the time might come when you would think of letting it go.
To know when, consider the following indicators.
When a major life event happens
When some critical life events happen, it is high time for you to re-evaluate your ownership of investment properties. These major life events can be a death in your family, a new family member, a devastating accident that left a relative in need of extra or intensive care, a sudden or unwanted layoff, or a job relocation.
If a life event suddenly deems you unable to work, however, it might be necessary that you keep an investment property, such as a rental, as a source of semi-passive income.
When there are greater passive income sources
Aside from the rental income you may be earning from your investment property, there are plenty of other sources of passive income that you might acquire. You may have a bond income, dividend income, REIT income, P2P income, real estate crowdfunding income, royalty income, and CD income.
Having diverse streams of passive income is extremely important. You never know which asset classes are going to flourish, and which ones might suddenly flunk. If you have other passive income sources that generate just as much or more money for less amount of activity, then your investment property becomes less optimal.
When homeowners are targets of excessive tax hikes
City and State governments tend to make homeowners pay for any new project by increasing property taxes. Although most would think that the higher property taxes lead to higher rents, it usually takes property owners some time to pass the extra tax cost to their tenants. So, even if you are using your investment property as a rental, it might take a while for your income to keep up with tax hikes.
This becomes a sore issue for property owners in places where property tax hikes seem to have no end. If your investment property is located in California, New Jersey or Illinois, for example, it might be best for you to do a 1031 exchange to a more property tax friendly state, like Nevada.
When the joy of owning fades
The joy of owning an investment property may become less than the joy of doing something more important. Collecting rental income, for instance, tends to wane the more money you make. It would feel just like eating the last slice of pie on your plate just because you have to — it is not as enjoyable as your first slice, no matter how good it is.
For some property owners, there comes a time when a property becomes purely an income generator, without the nostalgia. Once you have taken the emotion out of your investment, you are ready to let go of it for more important things.
As in most things, timing is key when selling your investment property. Do not sell it simply because the current market trends. Weigh your priorities and options, and if parting with your property will let you make space for the things that truly matter.