Why I Sold My First (and Only) Investment Property After Less Than One Year

  1. 4. This year, my reported income will be lower, which will push me to a lower tax bracket.
Photo by Robert Linder on Unsplash

I bought my first investment property (out-of-state, cash-flowing, tenant in place) last year and sold it a couple of months ago. I held the property for less than one year, meaning that I’ll realize short-term capital gains tax on the sale (24% vs. 15% long-term capital gains tax rate, given my most recent salary).

2022 Short-Term Capital Gains Rates | Source: Investopedia and IRS
2022 Long-Term Capital Gains Rates | Source: Investopedia and IRS

In hindsight, I could have held the property for a few more months to qualify for the long-term capital gains tax rate. All in all, though, I still think that I made the right choice — here are my reasons why:

1. My property appreciated by 20% in less than one year, despite doing no upgrades or major repairs.

My property is in a suburban, midwest town that traditionally hasn’t appreciated much in the past.

To quantify, the average appreciation rate in my property’s neighborhood is 1% lower than the national average year over year.

During the housing market of 2021, my property appreciated by more than 20% without any upgrades. I didn’t want to lose out on this opportunity.

I ended up selling the house at less than it was estimated to be valued at (around 12% appreciated value since my original purchase) for a number of reasons mentioned further down.

2. My current tenant’s lease was ending this year, and I didn’t want to deal with finding new tenants.

Since my property was out of state, I hired a property management team to help me with the day-to-day operations of property maintenance.

They were great but charged a significant premium for marketing costs, tenant screening costs, and lease renewals. Since my existing lease expires in mid-2022, I wanted the property to be sold before then.

Also, the population in the town I bought in was slowly declining, and I didn’t want to take a chance on a potentially vacant property.

3. I quit my job to pursue a full-time MBA. Without a consistent salary, I was afraid of what would happen in case of unexpected costs.

Although I was fortunate to not have any major repairs of maintenance issues (e.g. HVAC replacement, roof replacement, which can individually cost between $5000 — $10,000) during the time I was a landlord, I still spent around 4.6% of the purchase price for property work that added up over the course of my ownership.

I decided to pursue a full-time MBA this year with no income. While I would have been able to swallow the cost of “regular” maintenance (the same as what I paid this year), I definitely could not have paid for any costs beyond this.

4. This year, my reported income will be lower, which will push me to a lower tax bracket.

After reviewing the latest 2022 tax rates, I’ll be pushed to a lower tax bracket after generating being employed for just 4 months this year (rest of the year is dedicated to my full-time MBA). So, even though I realize short-term capital gains on my sale, at least I’ll have a lower tax burden than if I had sold it any other year.

I’m still waiting for my 2022 bonus check from my most recent employer, and my final tax burden will depend on the amount. I’ll also deduct a couple of months’ worth of interest, depreciation, and repairs, so I’m hoping that my tax burden isn’t going to be too bad.

Given these reasons, it made sense for me to let go of my property this year. I received four offers on the property.

I ended up profiting from the sale, but the actual selling process wasn’t as smooth as I had hoped:

Despite it being a “seller’s market,” my property was listed for around 2 months before it sold for less than it was originally listed for.

The listing period was over the holidays, and I was traveling for most of the time.

My realtor faced an unexpected family emergency for a few weeks, and understandably had to be out of pocket.

One of the buyers who put in an offer pulled out at the last second.

Having gone through these setbacks, below are a few lessons I’ll remember when selling my future investment properties.

1. Interview your seller’s agent.

Let them know what your preferred communication style is. Some agents like to solely communicate via email, others via text/ phone call. Some agents like to engage once every couple of weeks, while others like to check in every few days. I personally would have preferred more communication, but I didn’t clarify this at the beginning of our working relationship, so it was my fault!

During the interview, don’t forget to confirm the commission, but also focus on the overall working relationship. I originally went with my agent because the recommender let me know that she could represent both myself (seller) and the buyer, but this ended up not happening as we went with a different buyer. I was too fixated on the lower commission percentage to look at the entire relationship as a whole, so my interview was not holistic.

2. Give yourself a timeline (and add a buffer).

I initially let my agent know about a timeline I was comfortable with. However, since this was my first property sale, I didn’t know how long everything would take!

I didn’t know the seller’s market as well and ended up listing the property way over the price that most would consider buying it at. We received four offers, all at (financed) or under the asking price (cash).

After a buyer pulled out at the last minute due to a delayed inspection, we were fortunate enough to secure a cash buyer, which made the selling process easy (complete in less than 14 days).

Anything can go wrong in a real estate transaction because there are so many moving parts — don’t forget to add in a time buffer! I closed a full month beyond the date that I thought I was going to close.

After the sale of my property, I reflected upon my (almost) year-long journey. The buying/selling/ownership of my investment property was a learning experience. I truly enjoyed being a landlord and relished the pride of owning something that could provide for a tenant. I hope to continue my investment journey and become a better investor and landlord moving forward.

In my next post, I’ll disclose some financials around my property investment, including a breakdown of my operating costs and numbers around my purchase and sale.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.