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Timing the Sale of Your Investment Property

Two men shaking hands and agreeing over a contract

They say timing is everything and this can’t be truer for California real estate listings. Here are some tips on timing the sale of your investment property straight from top commercial real estate agents.

When to sell

Lease renewal. Whenever a major tenant, such as an anchor tenant, renews a long-term lease, it increases perceived confidence in the property’s value and makes it more attractive to other investors, who will view the property as a good investment. You can publicize major lease renewals through press releases and other announcements.

Lease expiration. It can be difficult to sell commercial property just as a major tenant’s lease is expiring since most property investors typically don’t want to have to search for a new tenant within the first few years of owning the said property.

However, if you are aware that a major tenant has no plans to renew their lease, your best option is to sell when they still have two to five years left on the lease. This won’t put investors off and will help you secure a good price for the property.

Financial considerations. It might be a good time to sell depending on your unique financial situation. It is generally advisable to sell if:

  • You have more robust sources of passive income – Having a robust and diversified stream of passive income stream means that you aren’t solely dependent on rental income, putting you in a position to sell.
  • You’re the beneficiary of a property – When you inherit property after the loved one’s passing, the property could be potentially worth more than when it was first purchased.
  • In a process called “step up in basis”, the low basis or original value of property allows you to sell without having to pay taxes on its full value, which means you could potentially pay less in taxes due to the difference between its original and appreciated value.

  • Your loan is about to become due – If a property loan is about to become due and you find that you are unable or unwilling to pay, you may facilitate a quick sale, which allows you to pass the loan onto the buyer and cash out on any equity you have built on the property.
  • Other investments – If you have found a better use for the proceeds from your rental income, such as an investment with greater returns and lower risk, you may want to channel your finances towards this investment instead.

Upcoming repairs. Some of the biggest recurring expenses when it comes to repairs and maintenance are due every 10 to 30 years. These include:

  • Roof installation
  • New paint
  • New HVAC installation
  • New water heater installation
  • Deck repairs
  • Kitchens and bathroom remodeling
  • Electrical wiring update

Major repairs and maintenance work can easily cost thousands of dollars. If you are due to make expensive repairs and updates on the property, consider selling so that you can pass the costs onto the new owner.

Market conditions. Signs of a commercial real estate slowdown, tax hike for property investors, foreseeable inventory surplus, detrimental legislation, and other factors affecting the market may require you to evaluate your real estate holdings and consider selling before the market takes a turn for the worst.

Working with a real estate team like the R&Z Group of Marcus & Millichap can give you access to market data and other relevant information.

Major life events. The birth of a child, death of a loved one, an accident, a health crisis, an unforeseen layoff, work relocation, and other major life events will require you to re-evaluate your property investments.

Depending on your personal goals and circumstances, you might have to sell in order to cash out on your investment or hold onto the property for a steady source of passive income.

Non-financial considerations. In some instances, an investment property may hold sentimental value, making you unwilling to sell. This tends to be the case with rentals in which you may have lived and raised a family at one point. Or it could be a commercial property that has turned into a local landmark or town center that creates a sense of community in the area.

If you don’t feel ready to sell, don’t – else you might get a case of seller’s remorse down the line, which could cause you to buy back the property at a higher amount than you initially paid for it.

Thinking of selling? The R&Z Group of Marcus & Millichap is here to assist you. Message us here. You can also get in touch with Tony at 650.391.1758 or tony(dotted)zizzo(at)marcusmillichap(dotted)com and Raymond at 650.391.1781 and raymond(dotted)rodriguez(at)marcusmillichap(dotted)com.

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