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Sell Your Rental Property for More

By - 2006

When you sell income property, it isn't like selling a house. Paint a house, and you'll get a little more because it looks nice. Rental property is different, because the buyers are investors, who look at income more than new paint. Raise net income, and you increase value.

Assume investors in your area expect a capitalization rate of .08. That means that they expect a net return (before loan payments and taxes) of 8% on the purchase price. If your three-unit rental house generates $12,000 net income annually, they'll value it around $150,000 ($12,000 divided by .08). If you make it generate $16,000, you'll make it worth $200,000.

Get More Income from Your Income Property

Raising rents is the obvious way to boost income, if you can justify it. What are similar units renting for? If you're $60 below the going rate, you won't lose your renters by raising the rent. $60 more for three apartments means $2160 more net income annually. At a .08 cap rate, you just created $27,000 in value.

There are other ways to raise rents. Your tenants might agree to $30 more per month if you have a carport built. That's $1080 more net annual income, meaning roughly $13,500 more value added to your property. ($30 x 3 x 12 months = $1080 divided by a .08 cap rate = $13,500) Build a carport for $4,000, and that's a good return on investment right? What else might they want?

Find other ways to get more income. Rent storage sheds to tenants or put in coin-operated washers and dryers If you have a larger income property, you could install pop machines.

Reduce Rental Property Expenses

You could add insulation to reduce your heating costs. If you're paying $70/month for lawn care, will one of the tenants do it for $50? Can you find cheaper insurance? Find ways to reduce expenses. Spend $4,000 on a furnace that saves $800/year on heating costs, and you can get a $10,000 higher sales price.

These things aren't an exact science, and of course appearance and other factors matter. Increasing the net income, though, is the surest way to get more for your income property. Make the changes at least several months before you try to sell the property. Also, learn how do the math - it really does help.


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Houses Under Fifty Thousand | Sell Your Rental Property for More