Table Of Contents
• How to Sell Rental Property Hawaii
• Signs It’s Time to Sell a Rental Property in Hawaii
• How to Have a Smooth Rental Property Sale in Hawaii
• Considerations when Selling a Rental Property to Avoid a Tax Hit Repairs or Renovations
• Selling Rental Property with a Tenant Hawaii
• Steps in Selling a Rental Property in Hawaii

How to Sell Rental Property Hawaii

If you’re looking to sell a rental property in Hawaii, you have a few different selling options to choose from. In this article, we’ll walk you through each of those selling options, so you can make the best decision for your situation.

Signs It’s Time to Sell a Rental Property in Hawaii

There are several signs that it may be time to sell a rental property in Hawaii. In this article, we’ll walk you through each of those signs, so you can make the best decision for your situation.

Soaring Hawaii Home Sales Prices

Hawaii‘s real estate market has been on fire in recent years, with home sales prices reaching all-time highs. If you’ve owned a rental property in Hawaii for a few years, now may be the time to cash in on those rising prices and sell for a profit.

Hawaii Housing Demand Vastly Exceeds Supply

Another sign that it may be time to sell a rental property in Hawaii is the state’s current housing demand. The demand for housing in Hawaii vastly exceeds the supply, creating an incredibly competitive market. This allows sellers to potentially command higher prices and receive multiple offers on their properties.

Changing Local Market Conditions in Hawaii

Pay attention to any changes in the local market conditions of Hawaii. Are new businesses or developments popping up nearby? Are property values on the rise? These are indications that now may be a good time to sell your rental property in Hawaii.

The rental Property Needs Repairs and Upgrades

If your rental property in Hawaii is in need of significant repairs or upgrades, it may be time to sell. The cost of making those updates can often outweigh the potential return on investment, so selling may be the better option.

Rental Property is Inherited Property

If the rental property in Hawaii was inherited or originally purchased as a vacation home, it may no longer serve its original purpose. In this case, selling the property could be a smart financial decision.

You Want to Retire from Being a landlord

If you’re ready to retire from being a landlord and no longer want the responsibility of owning rental property in Hawaii, it may be time to sell. Consider seeking advice from a financial professional who can help you determine if selling is the right move for your retirement plan.

How to Have a Smooth Rental Property Sale in Hawaii

Now that we’ve gone over some signs it may be time to sell a rental property in Hawaii, let’s discuss how to have a smooth sale.

Know the Type of Buyer You Want to Attract

Are you looking to sell to a long-term investor or a potential homeowner? This will impact the steps you take in preparing your rental property for sale. For example, investors may be more interested in the financials and profitability of the property, while homeowners may prioritize features and aesthetics.

Arrange a Pre-listing Home Inspection

Arranging for a pre-listing home inspection can save you time and headaches during the selling process. This allows you to address any issues that may come up in the inspection, rather than potential buyers finding them during their own inspections.

Decide If It Is Worthwhile To Do Repairs or Sell As-Is

After the pre-listing home inspection, you may find that the rental property needs repairs. Take the time to consider if it is worth it to do those repairs before listing, or if selling as-is is a better option for your situation.

Do a Lien Search

It’s important to do a lien search on the rental property before listing, as any outstanding liens could hinder the sale. By taking care of them beforehand, you can ensure a smoother transaction for all parties involved.

Inform Your Tenant about Your Intention of Selling the Property

If the rental property is currently being rented, ensure that you inform the tenant of your intention to sell. This gives them time to plan and make any necessary arrangements, while also showing potential buyers that the property is available for sale.

Study the Tax Implications of Selling a Rental Property in Hawaii

There may be tax implications to selling a rental property in Hawaii, so it’s important to do your research and consult with a financial or legal professional if necessary.

Depreciation Recapture Tax

If the rental property in Hawaii was previously depreciated for tax purposes, you may be subject to depreciation recapture tax. This means that a portion of the profit from the sale will be taxed at a higher rate.

Capital Gains Taxes

Any profits made from selling the rental property in Hawaii may be subject to capital gains taxes. This can vary based on how long the property was owned and used as a rental, so it’s important to understand the tax implications before listing your property for sale.

Illustrative Example Of Tax Consequences When Selling A Rental Property

Let’s say you purchased a rental property in Hawaii for $500,000 and depreciated it for tax purposes over the past five years. The property is now worth $600,000 and you decide to sell it.

In this scenario, you would likely be subject to depreciation recapture tax on the portion of the profit that was previously depreciated. So, if $50,000 of the profit ($600,000 selling price minus $550,000 original cost) was from depreciation, that portion would be taxed at a higher rate. The remaining $50,000 of profit would be subject to capital gains taxes.

Considerations when Selling a Rental Property to Avoid a Tax Hit

When it comes time to sell a rental property, there are a few things you can do to minimize the tax implications.

Take Advantage of the 1031 Tax Deferred Exchange on an Investment Property

This allows you to sell the rental property and reinvest the profits into another investment property, deferring any capital gains taxes.

Consider Living in Your Rental Property Prior to Selling to Avoid Capital Gains Tax

If you have owned and lived in the rental property for at least two of the past five years, you may be eligible for the capital gains tax exclusion on profits up to $250,000 (or $500,000 if married filing jointly). This can significantly reduce any potential taxes on the sale of your rental property.

Evaluate the Property for Possible Tax-Deductible Repairs or Renovations

If the rental property needs repairs or renovations before listing, consider any that may be tax deductible for the current year. This can help to offset some of the costs and potentially minimize your tax burden from the sale.

Use Tax Harvesting to Offset the Capital Gains Tax

If you have investments in a taxable account, you can sell them at a loss to offset any capital gains taxes on the sale of the rental property. This is known as tax harvesting and can be a helpful strategy when selling an investment property.

Selling Rental Property with a Tenant in Hawaii

If you’re thinking of selling your rental property in Hawaii, it’s important to understand the tax implications. Here we’ll walk you through some of the things you need to know before putting your property on the market.

Wait for Your Tenant’s Lease Expiration or Offer a Buyout

If your tenant has a lease, it’s best to wait until their lease expires before selling the property. However, you can also offer them a buyout in exchange for releasing any remaining time on the lease.

Sell Hawaii Property to Your Existing Tenant

If your tenant is interested, selling the rental property to them can be a win-win situation. They get their dream home and they don’t have to go through the traditional selling process.

Sell Your Rental Property with an Active Lease

If you decide to sell with an active lease, it’s important to include language in the sales contract stating that the new owner must honor the terms of the existing lease. This will protect both you and the tenant going forward.

Offer your Tenant to Vacate

If your tenant is not interested in purchasing the property or staying on as a renter, you can offer them a cash-for-keys agreement. This means offering them financial compensation in exchange for vacating the property by a certain date and leaving it in good condition.

Steps in Selling a Rental Property in Hawaii

If you’re thinking of selling your rental property in Hawaii, it’s important to understand the tax implications. Here we’ll walk you through some of the things you need to know before putting your property on the market.

1. Real Estate Agents

It’s a good idea to work with a real estate agent who has experience selling rental properties in Hawaii. They will have knowledge of the local market and be able to advise you on the best-selling strategy for your property.

2. FSBO (For Sale by Owner)

Some property owners choose to sell their rental properties by themselves, without the aid of a real estate agent. However, this can be more time-consuming and may result in less favorable offers.

3. Real Estate Investors

Another option is to sell your rental property to a real estate investor. This can be a quick and easy way to get cash for your property, but the offer may not be as high as if you were to list with an agent or FSBO.

Hawaii Resources To Sell Your House