For years, owning rental properties has been a great way for many South Jersey investors to build wealth and create monthly income. But eventually, some longtime landlords reach a point where they are ready for something different.

They may be tired of repairs. They may no longer want late night calls from tenants. Property management may feel like more work than it used to. Or they may simply be ready to enjoy the equity they have built over many years.

Recently, I was contacted by a longtime South Jersey real estate investor who is doing exactly that. She has already sold some of her investment properties and plans to sell the rest of her rental portfolio over the next several months.

It is becoming an important conversation for longtime property owners:

When is the right time to sell your rental property, and what is the best way to do it?

Can You Sell a Rental Property With a Tenant Living There in New Jersey?

Yes. A rental property can be listed and sold while a tenant is still living in the home.

However, selling a tenant occupied rental property can take more planning than selling a vacant property.

One of the biggest considerations is access to the home.

In New Jersey, there is not a blanket law giving a landlord the right to enter a rental property simply to show it to potential buyers. The terms of the lease are important, and tenant cooperation can have a major impact on the selling process. (New Jersey Government)

This is one reason I believe maintaining a good relationship with tenants is so important.

When tenants understand what is happening and feel respected, they may be much more cooperative about scheduling showings, keeping the property presentable and allowing photographers, inspectors and appraisers into the home.

A difficult relationship can make those same things much more challenging.

Selling a Tenant Occupied Rental Property Can Create Obstacles

Every situation is different.

Some tenants are wonderful about allowing showings and keeping the property clean.

Others may have busy schedules, pets, children or other circumstances that make showing the property more difficult.

There may also be concerns about the condition of the home.

A landlord may have maintained the major systems of a property very well, but the home may not show as nicely as it would if it were vacant, professionally cleaned and prepared for the market.

That does not mean the property cannot be sold successfully.

It simply means the marketing strategy needs to take the tenant, the lease, the property condition and the likely buyer into consideration.

What Happens to the Tenant's Security Deposit When the Property Is Sold?

This is another detail landlords should not overlook.

When a New Jersey rental property is sold or transferred, the tenant's security deposit and accrued interest need to be addressed as part of the transfer of ownership. New Jersey law places responsibility on the new owner regarding the security deposit. (New Jersey Government)

This is one of several reasons I recommend getting organized before putting an investment property on the market.

Have your leases, tenant information, security deposit records, repair information and other important documents available before the property is listed.

Is It Better to Sell a Rental Property Vacant?

Sometimes it is.

The Maple Shade investment property I am currently helping with is vacant.

That gives the owner an opportunity to prepare the house before it goes on the market.

She is making some repairs, cleaning the property and taking care of items that should help the house show better.

The goal is simple:

Make smart improvements that can help produce the best possible return without spending money unnecessarily.

Not every rental property needs a major renovation before it is sold.

Sometimes fresh paint, a thorough cleaning, minor repairs, better lighting, yard cleanup and removing old or worn items can dramatically change a buyer's first impression.

Other times, it makes more sense to sell the property in as is condition.

That decision should be made after looking at the property's condition, location, likely buyer pool, estimated selling price and the cost of making improvements.

Should You Make Repairs Before Selling an Investment Property?

There is no single answer.

Before an investor spends thousands of dollars preparing a rental property for sale, I like to look at what those improvements are realistically going to add to the selling price.

For example, spending $15,000 does not automatically mean the property will sell for $15,000 more.

The right question is:

Which improvements will help buyers see the value in the property and which improvements are unlikely to provide a good return?

That is where having an experienced local real estate professional walk through the property before you start spending money can be extremely helpful.

Sometimes I may recommend doing several things.

Sometimes I may recommend doing almost nothing.

The strategy should fit the house.

What If You Own Several Rental Properties and Want to Sell Them?

You do not necessarily have to put everything on the market at once.

For an investor who has owned several properties for many years, selling them gradually may make the process easier to manage.

It also gives the owner time to evaluate each property individually.

Which property should be sold first?

Which one has a tenant?

When does the lease end?

Which property needs repairs?

Which property may appeal to an owner occupant?

Which one may be more attractive to another investor?

What are the tax consequences of selling each property?

The answers can be different for every house.

That is why an investor who wants to sell several rental properties should have a strategy before putting the first property on the market.

Do Not Forget About Taxes When Selling a Rental Property

This is an important conversation to have with your accountant or tax professional before selling.

The sale of rental real estate can create taxable gains, and depreciation taken during the years you owned the property may also affect the tax calculation.

Some investors who want to remain invested in real estate consider a Section 1031 like kind exchange. When properly structured, a qualifying 1031 exchange may allow an investor to defer recognition of certain gains by exchanging investment real estate for other qualifying investment real estate. There are specific IRS requirements, so this needs to be planned before the transaction is completed. (IRS)

For someone who is selling because they want to get out of the landlord business completely, a 1031 exchange may not fit their goals.

That is why your Realtor, accountant and attorney should each be part of the conversation when appropriate.

For Some Longtime Landlords, It Is Simply Time

Owning investment property can be incredibly rewarding.

But there comes a time when some investors look at their portfolio and say, I am ready to simplify my life.

Maybe you bought a rental property 20 or 30 years ago.

Maybe the mortgage is paid off or the property has significant equity.

Maybe you have dealt with countless tenants, repairs, water heaters, roofs, inspections and phone calls.

And maybe you no longer want to do it.

Selling does not mean the investment was unsuccessful.

Quite the opposite.

Sometimes selling is simply the final step in a very successful long term investment.

Thinking About Selling a Rental Property in South Jersey?

If you own an investment property in Maple Shade, Cherry Hill, Mount Laurel, Marlton, Voorhees, Pennsauken or anywhere in Burlington, Camden or Gloucester County, I would be happy to help you figure out what makes the most sense.

I have been helping South Jersey homeowners, buyers, sellers and real estate investors for more than 31 years. I also understand investment property from an owner's perspective, including the decisions that come with preparing a property, dealing with tenants, deciding what repairs are worthwhile and determining whether selling as is may make more sense.

You do not have to decide today that you are selling.

Sometimes the first step is simply finding out:

What is my rental property worth?

Should I make repairs before selling?

Would it sell better vacant or occupied?

Who is the most likely buyer?

What could I realistically walk away with after the sale?

If you are starting to think about selling one rental property or an entire South Jersey investment portfolio, contact me. We can look at the property, talk through your options and put together a plan that makes sense for you.

Michaela L. Hartery
South Jersey Realtor
Serving Burlington, Camden and Gloucester Counties