Selling off only when necessary
When considering if you should ever sell off one or more of your investment properties, it’s intelligent to already have an exit strategy planned out. Even when you’re buying rental property, your exit strategy should be kept in mind. Cash flow is of utmost importance here. With current US bank mortgage rates taking a dip this week, remember that holding a lot of debt is an excellent strategy – as long as you maintain your positive cash flow. Only when a property is throwing off a negative cash flow should you consider releasing it.
If you utilize the rental property calculator on our site, or any other, you should be able to input your raw property information numbers data to see if your potential property will throw off a proper positive cash flow. Take into account that current property loans with lower mortgage interest rates should be input into the calculator. In this way, you’ll be able to get a truer picture of the anticipated cash flow on a property.
When it’s time to unload your rental property
If you’ve been living with a poorly performing investment property for some time (at least two years), then it certainly may make sense to unload it. However, consider the option of converting any of your existing investment property mortgages into interest-only loans, if possible. If not possible, consider, using your home as a source of funding. If you take out a home equity line of credit, and replace an existing principal and interest payment loan on a poorly performing investment property in your stable, you may find the monthly savings from the interest-only line to be the perfect solution to a negative cash flow scenario., Even it it helps enough to create a break-even scenario, it would be best to hold the property long term for capital appreciation.
Only sell the dogs of war
The only rental properties you want to unload are the ones that have been underperforming for a very long time (what I call the dogs of war), with no sign of turnaround…even after you’re able to pare down financing costs to interest-only on them. At that point, it would be wise to sell the investment property off. Remember, it’s always best to have your exit strategy in place when you first acquire a property. And try to forestall a quick unloading of any rental property by attempting to convert an existing principal and interest mortgage to an interest-only equity line. If that’s not possible, replace the mortgage with proceeds from an interest only home equity line. The savings may be enough to allow you to retain the investment property, while taking advantage of capital appreciation…not to mention the tax breaks associated with holding the rental property.
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