Should I sell my rentals in a hot market?

It has been a blazing hot real estate market lately, with a shortage of available houses for sale and new construction too pricey (think lumber prices, tariffs, and other factors) to keep up.

The demand for rentals has also skyrocketed in most places and with it, rental rates. With rental units so desirable, does that mean this is a good time to sell off some or even all the rental properties you own?

Ultimately, the answer is the same as it always is with real estate: That depends.

On one hand, you might be able to command higher rents, which would make your properties more profitable. Rentals are traditionally a long-term strategy meant to produce a (relatively) passive income, and as long as you’re turning a profit and paying down the principle, many owners like to hold off on selling.

Except when they don’t.

If you stand to make a good profit by selling — good being a subjective term based upon your unique circumstances and goals — then perhaps this is a time to cash out. Maybe you need the capital for medical expenses, tuition, or other reasons. Or maybe you’re eyeing another market.

You might want to sell and roll the money into another investment, perhaps using a 1031 exchange that allows you to defer paying capital gains taxes (consult with a professional for how to do this properly). Many an investor trades up in this manner.

A variety of factors are at play in the “When should I sell?” scenario, and above all, cool heads should prevail. Take your time and approach it analytically, not just in reaction to an up or down market.