Rentals Are Not Forever

[Wade O]

One of the ideas perpetuated by many of the Real Estate Investment "gurus" is that once you buy a rental property, you continue to hold on to it. This may be the right approach at times. After all, your fixed interest mortgage will remain the same as rental rates go up. Often, rentals make no money except in tax benefits over the first couple of years. They produce a cash flow only when rental rates surpass carrying costs.

There are other factors to consider, however. One is that the tax benefits will eventually have to be repaid. The depreciation you enjoy each year will be reclaimed when the property is sold. One exception to this rule, however, is that government does not recover your claimed depreciation from your heirs should they inherit the property after your death.

More important, however, is the increase in value of the property. Consider its current value and the return on investment. If you were considering the property as a new investment, would you buy it now or would it make more sense to place your money elsewhere? If you would not buy it today, then it probably makes little sense to hold on to it at the current price. If your return on investment would be better elsewhere, it is time to sell.

NOTE: Yes, this article can be found for free at various places around the Internet, but, no, I'm not guilty of plagiarism for posting it here. I am Wade Ogletree, the article's original author. Just wanted to clarify that. Cheers. :mrgreen:

Wade