How to Sell a Rental Property in Chicago

The rental property scene in the Chicagoland area remains tough, with sought-after rental homes flying off the market in just 30 days. As landlords notice the selling prices of nearby homes, many may think about cashing in on their property to invest elsewhere. So, what’s the best way to maximize your profits when selling your property in the current market? Keep reading to discover more.

Why Sell a Rental Property?

Buying real estate and owning rental homes is a wise choice in today’s market. Many places are seeing a big need for housing, making rentals a good long-term or short-term investment. Even if you choose to invest for just a short time, property values are going up in nearly every state, making rental properties a smart way to add variety to your investment portfolio. However, before you sell, it’s important to manage the sale to keep taxes low and profits high.

Options When Selling a Rental Property

Putting your rental property in IL up for sale can be simple, like just putting a For Sale sign in the yard and adding it to the MLS. However, it could become tricky if there are tenants living there with an active lease. It’s important to know the rules in your county about selling a rented property. Make sure you understand the latest county, city, and state regulations before you decide to list your home for sale. Remember, you have choices!

Waiting for the Tenant’s Lease to Expire

If you’re not in a hurry to sell, letting the Tenant’s lease end could be the smartest choice for selling your rental property. This way, you can keep earning your monthly rent while you search for the perfect real estate agent to help sell your home or find a ready-to-buy investor with cash on hand. Waiting for the lease to finish can also help you skip the stress of showing the property with a Tenant still living there or dealing with a frustrated Tenant who might not want the home to be sold.

Pay the Tenant to Vacate

If your county, city, or IL law requires it, giving your tenant(s) cash to break their lease and move can be a quick and easy way to get them out of your property. This method can actually help both you and your tenant. In these cases, landlords and tenants agree on a payment that allows the lease to end without any legal issues. It’s beneficial for everyone involved; you can list your rental for sale when you want, and your tenants receive some financial help for their next move.

Sell the Property to Your Tenant

Perhaps you’re feeling worn out from owning a house that’s getting older and requires costly upkeep and repairs that you don’t have the time, energy, or money to handle. Or maybe you’re ready to move forward to your next investment and want to ensure the rental property stays with someone you can trust. In such cases, selling the property directly to the people currently living in the house could be the perfect solution! Whether you choose a traditional home sale or a lease-to-own arrangement, you can say goodbye to the headaches of managing an unwanted rental while still benefiting from any increase in value of the property during your ownership.

Sell the Property with an Active Lease

If you’ve decided to sell your rental house but you still have an active lease associated with the property, can you still sell? Yes, you can! 

For some investors interested in a rental property to add to their portfolio, your occupied house with an active lease is preferable to one that is vacant and requires the work of finding renters. If your Tenants have a good history that includes a security deposit with their lease, are consistently on time with their rent, and maintain the house and land around it, this is a great selling point for the house’s next investor!

Sell Your House to Sell With Garcia

Selling an investment property in a different way can save time and effort for real estate investors eager to start their next project. If you think selling your rental property for cash is the best choice for you, Sell With Garcia is here to assist. We aim to make selling your unwanted rental property simple and stress-free. Receive a fair cash offer quicker than you would with a traditional home sale by partnering with a local home buying company that specializes in cash purchases.

When to Sell a Rental Property in Chicago? 

Wondering when is the best time to sell your rental property? The answer is simple: whenever you feel it’s right for you! Maybe you’re a landlord who is fed up with the effort it takes to manage your properties, or perhaps you want to take advantage of the value increase in your rental home so you can invest elsewhere. The perfect moment to sell a rental property depends on your situation. At times, properties might decline in value, and upkeep costs can exceed what you earn from rent. No matter your reasons for selling, consider these important factors to help you decide if now is the time to sell:

Equity Level is High on the Rental Property

Recent information from the Federal Reserve reveals that the average home price across the nation has jumped 42% since January 2020*. If you’re considering investing in new properties or want to add variety to your investment portfolio, this could be a great opportunity to convert your home equity into cash while prices are still elevated.

Housing Demand is Strong 

You may have heard from various sources like the internet, news, or your local newspaper that even with rising prices, many people are still searching for homes in cities and suburbs across the United States. According to Realtor.com’s Housing Report for June 2023, homes are being sold quickly due to the ongoing shortage of available houses. In June, the number of homes that were not sold, including those already under contract, dropped by 4.6% from last year. With 25.7% fewer homes being listed for sale than the previous year, it’s no wonder that most homes were on the market for only 44 days.

Market Dynamics are Changing

The Realtor.com housing report revealed that the average price of homes on the market fell by -0.9% compared to last year in June. This is the first drop recorded since 2017. Should investors looking to profit from their properties feel worried? Not really. Predictions for any significant drop in home prices over the next few years are quite modest. Realtor.com pointed out that by the end of June, the inventory actually went down for the first time since April 2022. However, there could be other elements affecting your local market. In many cities, a rise in new construction might mean it’s becoming tougher to rent out properties.

Rising Interest Rates

If you are ready to sell your rental property and want to invest in your next property, be sure to keep an eye on those mortgage interest rate changes! Rising interest rates can make buying rental property more expensive for investors, as well as causing less demand in the housing market which could drive your selling price down. 2021’s extremely low interest rates have passed, with a 30-year fixed mortgage now as high as 7.8% for homeowners. 

Property Needs Repairs – High Maintenance Costs 

The years have passed and you’ve had more than one tenant using (and sometimes abusing) that rental property you bought brand new. Investors with houses, condos, and other types of property that have maintenance and repair bills adding up for those necessary upgrades may find it makes more financial sense to sell. A replacement water heater, a new roof, or an overhaul of the HVAC system can add up quickly, pinching your bottom line. Look over the numbers and see if selling at a slightly lower price may keep you from losing even more money to that rental property money pit.

Steps to Take Before Selling Your Rental Property 

Identify Target Buyer

Are you looking to sell to another investor? Would you prefer to pass your rental property on to your Tenant or a family looking for their first home? When you decide to sell, you’ll want to know who your target market should be. Once you identify your target buyer, you’ll know how to price the property for sale.

Decide on Your Pricing Strategy

When you are ready to sell your rental house, condo, or property, you’ll need to focus on your overall objective. Do you have time to wait and are looking to get the biggest profit possible? Would you prefer to sell quickly and with little to no hassle? Will you be able to sell the home vacated or will there be an active lease on the property? All of these things can affect your overall sale price!

Buyers Inspection and Do Repairs

If you are looking to make as much profit as possible with the sale of your rental property, you’ll want to make sure your appraisal and buyer’s inspection doesn’t turn up anything unexpected. Before you list the property, make sure everything is up to code and the property is “market ready”. Consult with an experienced broker and order a pre-buyer inspection. This could save you hours of time on negotiation and repairs you had no idea you needed.

Run a Lien Search

Do you still have a mortgage or some sort of financial loan on the property? If so, you most likely also have a lien from the lender against the title. This is only removed when the house sells and the mortgage is paid off at close. However, there might be liens you aren’t aware of. To make sure there are no encumbrances you need to deal with before selling, ask an escrow officer to order a title search. If something comes up, take care of it before putting the house up for sale.

Inform Tenant

Be diplomatic! Most states require landlords to let their existing Tenant(s) know the property will be going up for sale. To keep things civilized, let your renters know with as much notice as possible that you will be putting the property up for sale. 

Make sure to keep up-to-date on requirements of state and local laws to avoid the hassle of legal clashes due to misunderstandings or a lack of knowledge of the law. Some renters may have previously dealt with their rentals going up for sale, but to others this might be a totally new (and scary) process. Reassure them that the sale will not affect their lease, and that the security deposit will transfer to the new owner.

Analyze Capital Gains

When you sell your rental property, you’ll need to pay tax on depreciation recapture and any remaining capital gains. Due to this, many investors hold on to properties longer than they should due to a fear of losing too much profit to the Capital Gains tax. But there are straightforward ways to avoid capital gains. 

While holding on to an investment, owners will often use the depreciation expense to reduce taxable net income. But, when the property is sold, the total expense that was claimed is taxed as regular income up to a rate of 25%. But there is a way around this! The 1031 tax-deferred exchange allows investors to defer paying these taxes on their investment properties by purchasing a replacement property within 180 days of selling.