Being a Landlord is Not for Everyone

Having been landlords ourselves and having purchased houses from several accidental landlords we have seen and heard it all. From late-night calls to chasing rent, then dealing with trashed houses and other horror stories. For those who learn how to run the business its a great way to build wealth, but for others, it’s just not worth it.

We Have Learned that Being a Landlord is Not for Everyone

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Three Types of Landlords

The Accidental Landlord of the Past

Many people have become a landlords quite by accident. Back when we first started, there were quite a few people who had moved to a new home or moved away for work and were not able to sell the old house. Rather than let it sit vacant, or take a loss when selling, they opted to rent the home out. Others inherited a home they could not sell for the price they wanted so they rented it out.

While not as common in 2024, what all of these people had in common was a house that they could not sell for the price they wanted or perhaps needed. They were not landlords to begin with but they decided to try their hand at renting out a house. And while very housing provider starts their business with just one house. Some succeed and buy more, and others have a horrible experience and want the house sold as fast as possible.

The Accidental Landlord of Now

In today’s real estate market, we have a lot of accidental landlords, for two reasons: they overpaid or they have super cheap interest. A few got a little crazy when they purchased during the COVID years and overpaid for a house to win their bidding war. Now they owe a bit too much on it to pay a Realtor and all the costs associated with selling. So rather than coming out of pocket and paying to sell their house, they try being a landlord. Others look at the crazy low-interest rate and the crazy high rents they can get and decide to try their hand at renting out their home while they go off and live else where.

The Professional Landlord

Then we have professional housing providers who have lived through the Eviction Moratoriums of 2020 – 2022. Then they were hit by higher costs for everything in involved with owning and maintaining rental property. Then this past year we saw HUGE jumps in real estate taxes, especially here in Jackson County. Then with all the storms, fires and severe weather, insurance costs have gone up. And because the FED raised interest rates to fight inflation, now their costs if they need to borrow have gone up.

All this adds up and despite the much higher rental rates we see today, some properties no longer turn a profit. And when you add in all the crazy new regulations that Kansas City and other area municipalities are creating and many long time professional housing providers are getting out of the business.

How to Sell a Rental Property Successfully

Whether you are an accidental landlord who has decided it’s time to call it quits or a professional housing provider who needs a change, if it’s time to sell we have some tips to help you sell successfully.

Remember Capital Gains

When selling your primary residence, you can generally earn a profit of $250,000 if you are single or $500,000 if you are married without having to pay any taxes on that profit. But you must have lived in that house for two out of the past five years. But if rental property sale profits do not work that way.

If your rental property has increased in value over time, you could own capital gains tax. And if you inherited the property first, you would need to figure out if your starting value is from when you inherited it or from when it was originally purchased.

If you have owned it for only one year or less you will have short-term capital gains. Own it for more than a year and then you have long term capital gains. These can add up to between 10% to 37%.

And if you have depreciated your property the way you were supposed to, you will have that to add into the mix. So before you sell any rental property, have a chat with your tax advisor.

Deferring Capital Gains

You have a couple of options to defer your capital gains.

1031 Exchange

This would be a great option for the professional landlord who just wants to sell of the rental property that is not performing as needed and then buy a better-performing property. We see people selling in one area to buy in a different area or selling an older property to buy a newer one. Using a 1031 Exchange allows them to sell and trade their profits into the new property as long as you follow the rules and work with a qualified intermediary to get it all put together.

Sell On Terms

For our accidental landlords who really don’t want to trade the old rental in for a new one, they may decide to just pay the taxes. But there is another option. Sell the property on terms and get their equity over time rather than in one big lump sum.

Move in the Rental

Another option would be to move into the rental for the next two years, claim it as your primary residence. Then you would have no capital gains when you sell.

What About the Renters

When you want to sell a rental, you have a 3rd party you need to keep in mind. The renter.

Your renter has rights and you have to remember it is their home. You need to be sure to honor your lease and the lease terms. That means if you want to sell now and they just signed a lease for another year, that your renters and their lease are part of your sale package.

The Good Renter

If you have good renters, you know the ones that take care of the property and pay their rent on time. You might want to sell them as a package to the new buyer. A good quality tenant has value to a new landlord owner.

You might want to consult with a local Realtor to see the value of your property for an owner occupant buyer who would want the home empty vs the landlord buyer who would like your renter and the rents that they pay. Then you can determine if you want to sell it as a rental or wait out the lease and then sell.

The Bad Renter

Then you might have a bad renter. The renter that while they may pay on time, they don’t take the best of care. You get complaints about them from the neighbors and the police are called. These are the type of renters that cause many housing providers to sell. You still have to honor the lease, even though they are not the best of tenants.

In most cases you will be better off waiting out the lease or finding cause to evict so you can sell the house without the problem renter, and you will get a better price.

The Non-Paying Tenant

If you have a renter who has stopped paying, then you will want to get them out. It may be they will leave if you ask. More likely they will leave if you pay them to move out. And it may be that you will have to evict them.

Kim Tucker

Kim Tucker along with husband Don and son Scott have been buying houses across the Kansas City Metro since 1999. They specialize in solving problems, renovating homes, and fixing up the neighborhood. If you need help selling give them a call they make cash offers and because they are also licensed Realtors, they have a few other tools in their tool box.

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