How to Sell Rental Property California

Do you own rental property in California and are looking to sell? If so, you’ll want to read this post. In it, we’ll discuss the best ways to go about selling your rental property and maximizing your profits. So, whether you’re just starting out or are thinking of retiring, read on for tips on how to sell your California rental property.

how to sell rental property

Signs It’s Time to Sell a Rental Property in California

Before diving into the tips on how to sell, let’s first discuss when it may be time to sell a rental property in California.

Soaring California Home Sales Prices

If you’ve owned your rental property for a few years, chances are you’ve seen the soaring prices in California‘s residential real estate market. This trend is projected to continue into 2020 and beyond, making now the perfect time to sell.

soaring home sales prices

California Housing Demand Vastly Exceeds Supply

In addition to the rising prices, California‘s housing market is currently experiencing high demand and low supply. This means that selling your rental property could be a quick and profitable venture.

Changing Local Market Conditions in California

As with any market, local conditions in California can change over time. If you notice a shift toward lower demand or decreased prices, it may be wise to consider selling your rental property before the market takes a turn for the worse.

changing market conditions

The Rental Property Needs Repairs and Upgrades

Owning rental property comes with the responsibility of maintaining and upgrading the property. If your rental property is in need of major repairs or updates, it may be more cost-effective to sell rather than invest in those improvements.

Rental Property is Inherited Property

Inheriting rental property can come with mixed feelings. If you don’t plan on using the property yourself, or if it’s not generating a profit, selling may be the best option.

You Want to Retire from Being a landlord

Being a landlord can be demanding, both mentally and physically. If you’re ready to retire from the role of the landlord or sell off part of your rental property portfolio, it may be time to start thinking about selling in California.

How to Have a Smooth Rental Property Sale in California

Now that we’ve discussed when it may be time to sell, let’s dive into how to have a smooth rental property sale in California.

how to have a smooth rental property sale

Know the Type of Buyer You Want to Attract

Before putting your rental property on the market, determine the type of buyer you want to attract. Are you looking for a long-term investor or someone who plans to use the property as a vacation home? Having a clear idea of your target buyer will help in effectively marketing and selling your property.

Arrange a Pre-listing Home Inspection

arrange a pre listing home inspection

Make sure to have a pre-listing home inspection done on your rental property. This will alert you to any potential issues that may need to be addressed before listing the property for sale.

Decide If It Is Worthwhile To Do Repairs or Sell As-Is

After the pre-listing inspection, you’ll have a better idea of what repairs may need to be made before selling. It’s up to you to decide if it is worthwhile to make those repairs or if you want to sell the property as-is.

Do a Lien Search

Before putting the property on the market, do a lien search to make sure there are no outstanding debts or judgments against the property. This information should also be disclosed to potential buyers during the sales process.

do a lien search

Inform Your Tenant about Your Intention of Selling the Property

If your rental property is currently being rented out, it’s important to inform the tenant about your intention to sell the property. This gives the tenant time to plan for a potential move and may also make them more inclined to keep the property well-maintained for showings.

Study the Tax Implications of Selling a Rental Property in California

Before going through with the sale, it’s important to understand the tax implications. Talk to a financial advisor or accountant to determine how much of your profits will go toward taxes and what steps you can take to minimize those costs.

Depreciation Recapture Tax

In addition to standard income taxes, rental property owners may also have to pay a depreciation recapture tax on the profits from the sale. This is a one-time tax on any previous depreciation deductions that were taken for the property.

Capital Gains Taxes

If the property has increased in value since you purchased it, any profits made from the sale will be subject to capital gains taxes.

capital gains taxes

Illustrative Example Of Tax Consequences When Selling A Rental Property

To illustrate the tax consequences of selling a rental property, let’s go over an example.

Jane purchased a rental property in California for $500,000 five years ago. After making some renovations and renting it out, she decides to sell the property for $750,000.

In this scenario, Jane would have to pay capital gains taxes on the $250,000 profit made from the sale. She may also have to pay depreciation recapture tax on any previous depreciation deductions that were taken for the property.

Considerations when Selling a Rental Property to Avoid a Tax Hit

There are a few considerations to keep in mind when selling a rental property in order to avoid a tax hit.

One option is to do a 1031 exchange, also known as a like-kind exchange. This allows you to defer paying taxes on the profits from the sale by investing those profits into another similar property.

Another option is to sell the property while simultaneously purchasing a new property, known as a simultaneous exchange. This can also defer taxes as long as the sales price of the new property is equal to or greater than the sales price of the old property.

Take Advantage of the 1031 Tax Deferred Exchange on an Investment Property

Selling a rental property can be a big decision, but with the right planning and information, it can also be a profitable one. Our team can help guide you through the process and ensure that you get the best price for your property in a quick and easy sale.

take advantage of the 1031 tax deferred exchange on an investment property

Consider Living in Your Rental Property Prior to Selling to Avoid Capital Gains Tax

If you have been renting out your property for a while and are considering selling, consider living in the property yourself for at least two years before putting it on the market. This can make you eligible for the primary residence capital gains exemption, allowing you to avoid paying taxes on up to $250,000 of profits (or $500,000 if you’re married and filing jointly). Of course, this option may not be feasible for everyone, but it is something to keep in mind when making your decision.

Don’t forget to consult with a financial advisor or accountant to fully understand the tax implications before selling your rental property in California.

Evaluate the Property for Possible Tax-Deductible Repairs or Renovations

Before putting your property on the market, consider any repairs or renovations that may increase its value and potentially be tax-deductible. These could include fixing up worn floors or updating outdated kitchen appliances.

evaluate the property for possible tax deductible repairs

Use Tax Harvesting to Offset the Capital Gains Tax

If you do end up having to pay capital gains taxes on the profits from your rental property sale, consider using tax harvesting strategies to offset those taxes. This involves selling investments that have lost value in order to balance out the gains made from selling the property.

Selling Rental Property with a Tenant California

If you have a tenant currently renting your property, there are certain laws and considerations to keep in mind when selling.

It is important to inform the tenant of the sale and give them the option to purchase the property themselves before putting it on the market.

You must also follow all necessary eviction procedures if the tenant chooses not to purchase or is unable to do so.

Wait for Your Tenant’s Lease Expiration or Offer a Buyout

If the tenant is currently in a lease agreement, it may be best to wait until their lease expires before putting the property on the market.

If they are not in a lease or if you want to expedite the sale process, you could also offer them a buyout. This involves offering them financial compensation in exchange for agreeing to vacate the property before their lease is up.

Sell California Property to Your Existing Tenant

sell property to your existing tenant

If your tenant expresses interest in purchasing the property, they may qualify for owner-occupant financing which can be a less complicated and faster process than selling to an outside buyer.

Sell Your Rental Property with an Active Lease

If you have a tenant with an active lease, you can still sell the property to an outside buyer but it will require their cooperation.

You will need to inform them of the sale and give them the option to purchase before selling to an outside party. If they choose not to purchase or are unable to do so, you will also need to ensure that the new owner honors the existing lease agreement.

sell your rental property with an active lease

Offer your Tenant to Vacate

Early in Exchange for Compensation

If you have a tenant with an active lease but want to expedite the sale process, you can offer them a buyout as mentioned above. This involves offering them financial compensation in exchange for agreeing to vacate the property before their lease is up.

Steps in Selling a Rental Property in California

After you have taken care of any tax-related concerns and your rental property is either vacant or you have come to an agreement with your tenant, selling a rental property in California is no different than selling a regular house. You have three primary options for selling a rental property in California, which will differ based on the condition of your property.

steps in selling a rental property

1. Real Estate Agents

Hiring a real estate agent is often the quickest and easiest option for selling your rental property in California. They will handle all of the advertising, showings, and negotiations with potential buyers.

2. FSBO (For Sale by Owner)

If you have experience and knowledge of the real estate market, selling your rental property yourself (known as an FSBO) can save you the commission fees typically paid to an agent. Keep in mind, however, that this route requires significant time and effort on your part.

3. Real Estate Investors

If your rental property needs repairs or has any other factors that may make it harder to sell through traditional means, you could also consider selling to a real estate investor. These investors often purchase properties as-is and can close quickly without the need for repairs or renovations.

No matter which option you choose, be sure to thoroughly research and compare different agents or investors before making a decision. It is also important to carefully review any contracts or agreements before signing.

If you want to save time and energy with a cash buyer like ASAP Cash Offer, we recommend filling up our online form below or calling (805)427-8312. We buy houses in any condition (even ugly ones!) and pay cash (or get you all-cash offers) hassle-free and without high-pressure sales tactics.

California Resources To Sell Any Home

We Buy Fire Damaged HousesSelling a Fire Damaged House in California
We Buy Inherited PropertySelling Inherited Property California
We Buy Houses in ProbateSelling a House in Probate California
We Buy FSBO HousesHow to Sell a House by Owner California
We Buy Rental PropertyHow to Sell Rental Property California
We Buy Foreclosure HousesStop Foreclosure California
We Buy Houses During DivorceSelling a House During Divorce California
We Buy Hoarder HousesHow to Sell a Hoarder House in California
We Buy Condemned HousesCan You Sell a Condemned House in California?
We Buy Foreclosed HousesCan You Sell a House in Foreclosure California?
We Buy Rental PropertyHow To Sell a House AS IS in California
We Buy Tax Lien HousesHow to Sell Rental Property with Tenants in California

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