How Much Money You’re Really Making When Selling Your Rental Property

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All good things must come to an end, and there will probably come a day when you no longer wish to own a rental property. The process of selling the home is relatively straightforward, as you’ll contact a real estate broker to handle most of the work for you and wait for them to finalize the deal.

You’ll likely want to figure out how much you stand to make from this sale before you begin because it usually only makes sense to unload the property if you’ll be turning a profit. The amount you’ll earn when selling a rental property also determines how much you’ll owe in capital gains tax.

There’s more to this calculation than subtracting your purchase price from your sale price, however, because you’ve likely put some money into the property over the years that you’ll want to include in the formula. This guide examines how to calculate gain on sale of rental property and explores ways to reduce your capital gains tax bill.

Calculating Your Loss or Gain

Learning whether you’ll make money or lose money on your real estate deal is vital. The calculation isn’t overly challenging, but there could be some hidden expenses that influence your return. Calculating your loss or gain includes the following steps:

Figure Out the True Cost

The first step is calculating how much the rental property costs you in the first place. This amount includes the purchase price and any commission and closing fees you paid for things like the title transfer and notarization of your documents before taking possession. You might be surprised to see how much higher the actual purchase price is than the listing price.

Determine the Sale Price

The next step is figuring out an accurate sale price. Real estate commissions could also factor into this amount, reducing the money you receive after finalizing the sale. You’ll also want to factor your capital gains tax into this equation because it will eat away 15% or 20% of your profit, depending on the final sale price.

Factor in Additional Expenses

You’ll want to look at additional expenses you paid while owning the rental property when figuring out how much money you stand to make on its sale. Renovations, repairs, maintenance, property taxes, mortgage interest, insurance premiums, and any other expenses your tenants’ rental fees didn’t cover should factor into this equation. Subtract these expenses from your sale price for a more transparent look at how much money you’ll make on this deal.

Your real estate profits aren’t as straightforward as you might believe because there are so many expenses you’ll encounter along the way. Looking back and determining how much money you’ve put into the rental property over the years is the best way to decide if now is the right time to sell.

Four Tips for Reducing Your Taxes When Selling a Rental Property

Taxes will have a significant influence on the profitability of your real estate deal. The good news is that you can use some tricks to reduce your taxable income or spread it out over a few years. Four tax-reducing tips you might consider include the following:

1. Tax-Loss Harvesting

Those with stock market investments can take advantage of their losses through tax-loss harvesting. The gist is that you can sell any money-losing stocks you have at a loss and use them to reduce your taxable gains. Hanging onto your underperforming stocks until you need them to offset other gains is a strategy many investors use to reduce their taxes.

2. Installment Sale

Another option is allowing the buyer to pay for your rental property in installments. This method only works if you own the home outright without a mortgage, but it enables you to accept payments for the house over time, spreading your income out over several years. This strategy means you’ll only owe tax on the installments you receive in a particular year, cutting down on your immediate tax bill.

3. Move Into the Home

Converting your rental property to your primary residence allows you to exclude up to $250,000 in profits from your sale if you’re filing alone and $500,000 if you are married and filing jointly. The main catch is that you must have owned the home for at least two years and made it your full-time home for at least two of the preceding five years before selling. The years do not have to be consecutive to take advantage of this benefit.

4. 1031 Tax-Deferred Exchange

You can defer your capital gains tax owing by selling your rental property and replacing it with another through a 1031 tax-deferred exchange. This replacement property must be of equal or greater value to receive this benefit, and you must finalize the purchase within 180 days of completing the sale. This option is great if you no longer want a particular rental property but aren’t willing to give up your real estate investments entirely.

Finding a way to reduce your capital gains tax can help you make your real estate sale as profitable as possible. The result is a better experience as you move on from being a landlord and enter a new stage of your life. 

Selling Your Rental Home

Finding a buyer for your rental property could take some time, but using a professional real estate service will simplify the experience. Your real estate agent will quickly identify potential buyers and run open house events, ensuring you don’t have to wait too long to finalize the deal. The result is less stress as you move on and accept new challenges.

Nomadic Real Estate has a network of over 500 investors seeking new properties to add to their portfolios, helping us quickly identify leads when you decide to sell your rental property. The result is a faster sales process for you when the time comes. Contact Nomadic Real Estate for more information on our real estate transaction services or to learn how to calculate gain on sale of rental property in the Washington, D.C., area.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

Unit Comparison Report
  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

Income Statement by Month Report
  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.