Factors to Consider When Listing an Income Property
In comparison to other types of investments, real estate income properties come with a reasonably safe reward profile compared to the level of risk they come with. If you’ve got a real estate investment profile in the works, there may be a property or two that you’re considering letting go of. If that’s the case, listing it will need to be done with some careful consideration.
How Has the Investment Property Performed During Your Ownership?
Before you decide to list your income property for sale and rid your investment portfolio of it, make sure you’ve considered how it has performed for you thus far since owning it.
Has it attracted solid tenants that pay on time and don’t vacate the premises too often, or are you finding yourself stuck with frequent vacancies? Is it in relatively good shape, or does it require frequent repairs and maintenance? Is there enough equity in the property to sell it? Will the current real estate market allow you to obtain a decent profit?
Identifying how the property has performed for you and any potential headaches it has caused can help you decide if it’s a property worth holding onto for a while longer, or if your investment portfolio would be better off with an alternative.
Tax Implications
If you sell the property, you will need to be prepared to pay any capital gains tax on the profit you make on the sale of your investment property. While cutting your profits short because of taxes is never fun, you may have certain options to defer the taxes by exchanging your investment property for another through a tax-deferred exchange, otherwise known as a 1031 exchange.
In this scenario, the sale proceeds will not be transferred into your bank account, but rather will be kept in escrow while you search for other investment properties. If you structure the deal this way, you can defer the taxes that you owe on the profit and invest all the proceeds of the sale in a replacement property.
If you have intentions of opening up a business or buying securities, this is an entirely different calculation. Your accountant will be able to figure out your tax liability so you’re aware of the after-tax proceeds of the sale before you jump in.
How You Plan to Sell the Property
If you’ve currently got tenants occupying your unit, you can go about the sales approach a couple of different ways. You could choose to wait until the lease has expired and the tenant moves out.
This has obvious pros and cons: you’ll benefit from not having to work around your tenant and hope that the place is kept in tip-top condition as showings occur; however, that also means you’ll have to wait a while, which could put a halt on your investments in the meantime. Not only that, you won’t have any rental income coming in after the place has been vacated and is on the market for sale.
On the other hand, you can choose to list your property right away while the tenant is still living there.
For the majority of investor buyers, having a tenant-occupied property right off the bat is a huge advantage, since they would not have to deal with any vacancy from the start and be stuck looking for a suitable tenant. Of course, the major drawback to this option is that your tenant might not have any incentive to make access for showings very easy, nor will they be too inclined to keep the place neat and tidy.
How You Intend to Find the Right Buyer
Listing an investment property isn’t exactly like listing a typical residential property. The target audience is different, and you will need to market the property accordingly. Identify what the best way is to reach out to and attract as many prospective buyers as you can in order to target the right buyer and get the highest bid possible.
What Type of Information to Include in the Listing
What will you advertise in the marketing description of your income property? Components you might consider include the property’s cap rate, gross annual rents, zoning type, number of years left on the lease (if applicable), and so on.
The Bottom Line
If selling your income property is the right decision after weighing all the pros and cons and crunching the numbers, your next step is to work with a real estate agent who has experience marketing and selling investment properties in order for you to market to the right pool of buyers and get the best price possible. That way, you can effectively market your property, reap the highest rewards, and funnel the profits into your next financially sound investment.
