Investing and owning rental properties can be a lucrative route to success within the real estate market. Whether someone wants a vacation home away or wants to take advantage of the steady revenue stream coming from renters, there are dozens of ways a rental property pays for itself. Depending on where you’re based, it’s very possible that your rental properties are out of state, and at some point in your real estate journey you may explore selling that out of state rental property. Buying or selling properties out of state can come with its fair share of challenges, but by understanding the complexities of completing an out of state rental property sale, property owners and buyers can maximize their investments (and minimize their risk!) efficiently.
In this guide, CT Homes explores what sellers should know before selling an out of state rental property. From unexpected capital gain taxes to understanding what a buyer is looking for, CT Homes is your trusted source for reliable real estate maneuvers, and we have everything you need to sell a rental property smoothly.
What Causes Someone to Sell an Out of State Rental Property?
While there are numerous advantages of owning a rental property out of state, there are many reasons why the owner might sell. Besides the obvious disadvantage of managing the rental property across state lines, many rental property owners will sell when the market indicates they’ll make a profit. Especially after the rental market boom experienced after the coronavirus pandemic, many property owners have chosen to sell to take advantage of the high market prices. But there are many triggers for someone selling an out-of-state rental property, such as:
- Sellers Market: If a rental property owner knows that houses are selling well in their area, it’s possible for them to sell the rental property for a substantial profit compared to the purchase price. This is especially common in high-volume vacation areas or up-and-coming locations where rental properties are flipped frequently. In 2023, many rental properties are selling to capitalize on the current market trends, which is important to consider when considering options out of state.
- Sudden Relocation: In a marriage or divorce situation, the change in family status may cause one party to relocate. Likewise, a new job in a different state may force someone to move prior to selling their current rental property. Any drastic changes like this may cause someone to sell their rental property out of state.
- Inherited Property: In a situation in which the owner of a rental property passes away suddenly, it’s not uncommon for the next-of-kin to reside in a different state and have interest in selling. If the inheritor decides they don’t want to take on the burden of rental property management or ownership, they may seek selling options that put them in a position to cash out on the investment.
- Executor sale: In a case in which an estate executor is responsible for selling an out-of-state property, they may wish to complete the transaction remotely. Executors may have the responsibility of selling numerous properties at once, both within and out of state.
How selling rental property in another state works
Now that we understand what might cause someone to sell their out of state rental property, let’s explore some of their most popular options. Selling property in another state happens more often than people realize, and with the virtual selling options only increasing in popularity, it’s never been easier to get a rental property off your hands. But every rental property will have a unique set of demands, which can often dictate the seller’s options when finding a buyer across state lines.
Here are some of the most common strategies rental properties owners will implement to sell their property from a different state.
For Sale by Owner
For rental property owners that are looking to maintain control over their real estate experience from beginning to end, for sale by owner (FSBO) is a common option. No doubt there can be drawbacks to the approach (i.e. the seller will likely spend more time and energy in the process) it also has it’s perks! Selling FSBO puts the owner in the driver’s seat and allows them to have full control over the listing price and marketing strategies used to attract buyers and negotiate a desired selling price.
It’s very common for the seller to know the ins and outs of the property best, and can provide potential buyers with a realistic idea of the space, which is appreciated by buyers and future rental property managers alike. By skipping the realtor and sticking with FSBO, rental property owners are able to minimize commission fees and can dictate the selling price much more easily. Since they are directly involved in the negotiation of offers and potential offers, they can use their own approaches and strategies to get their property to sell for the highest amount possible. It always helps to have some offers on the table to start the negotiations – cash buyers like CT Homes are often eager and equipped to take the property off the owner’s hands as-is while expediting the sale.
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Real Estate Agency
One of the more traditional routes for selling rental property is by using a real estate agency, which in this day and age, can be done regardless of the seller’s locations. By finding a real estate agent in the rental property’s area, you can access their valuable listing service to list the rental property on the market. Additionally, by finding a local agent, you can ensure buyers have an in-person contact they can rely on for any questions about the property. This is one of the most hands-off approaches to selling a rental property, as the local agent will take care of listing the property, staging open houses, and ultimately, negotiating a selling price between both parties.
All that said, this convenience can come with a hefty price tag: real estate commission. A real estate agent’s services are typically calculated at the end of the real estate sale based on a percentage of the final selling price. Typically, the seller usually assumes most of the financial burden for both their agent and the buyer’s agent (if the buyer has one). Some agencies will offer flat listing fees, allowing the rental property to be listed, but this typically requires the seller to take care of stagings and open houses. But if the property owner is selling out of state, this may be an impossibility.
Selling Rental Property in Another State? Don’t Forget About Capital Gains Tax
While selling a rental property from another state is a fairly common occurrence, it’s important to remember that these properties pose a unique set of tax expectations, specifically, capital gains taxes. Many rental property owners will sell in order to turn a profit for what they purchased the property for, but in those cases, the seller will need to pay capital gains taxes on the sale. Typically, this tax is around 15% for joint filers, but can jump up to 20% after a certain income threshold. Regardless of whether your rental property is being sold in or out of state, the transaction is considered taxable, so make sure to consider this before jumping to sell.
That said, when selling a rental property from another state, it’s crucial to research federal and state level taxation requirements as these can vary widely based on the property’s location. For example, there are nine states that don’t require sellers to pay capital gains tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming. Additionally, if the rental property is classified as a primary residence, capital gains taxes are usually not expected. And even in cases where capital gains taxes will be charged, such as when selling a rental property from out of state, there are numerous ways to minimize these payments by talking to a tax specialist.
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Sell Your Rental Property Fast with Help from CT Homes!
Whether you’re a first-time rental property owner or you’re looking to streamline your real estate transactions, CT Homes is your go-to resource for a fast sale. If you’re looking to sell a rental property in a different state, CT Homes is here to eliminate all the time-consuming back-n-forth typical of traditional real estate transactions in favor of our simple cash as-is offers. Especially for those that are looking for a care-free experience selling an out of state property, CT Homes is the perfect choice.
CT Homes can help sellers list their property and have a care-free real estate experience. With cash offers that help sellers move on to the next great investment quickly, CT Homes can expedite the process of selling your home. Contact CT Homes today to learn more.