There are times when selling an investment property is necessary. Maybe you want to use the funds from the sale to finance your retirement or some other life event, or perhaps the reason is a strategic result of changes in the multifamily market or of a desire to avoid depreciation recapture. In any case, you want to get the best deal you can and have a plan for the taxes.
Considerations When Selling Investment Property
The biggest factor in the valuation of a multifamily property is its current and prospective income generation. If rents are rising in your market, then it will probably be easier to sell your property than if they are falling. You can benefit from being as flexible and resourceful as possible in either case, but it is especially important if you are selling in a falling market.
Understanding a potential buyer’s motivations may help you find ways to accommodate his or her needs and sell at a higher price. Perhaps the property you are selling fits into the buyer’s investment strategy well, but not into the budget. In that case, you might be willing to enter into an installment sale agreement. Besides facilitating the sale, this agreement would give you the option of choosing a convenient time to start payments and spreading out capital gains taxes over the entire payment period.
If you want to receive payments over time without making an installment agreement with the buyer, you could create a deferred sales trust. If you want to defer some or all of the capital gains taxes indefinitely, you can use a 1031 exchange or a partial 1031 exchange. Be aware that some advanced planning will be necessary since a 1031 exchange has a very strict deadline and requires a qualified intermediary to handle the transaction.
Good Advice Will Likely Get You the Best Deal
Your needs will determine the deal you ultimately choose, but your ability to plan effectively for the future and to use your financial options in a creative manner will impact the success of that deal. The most effective way to ensure solid planning and strategizing is to have an expert advise you or act on your behalf. A real estate investment professional can offer several advantages when selling your investment property:
- Top-notch negotiating skills. Experience counts at the negotiating table. Not everyone has the ability to reach an optimal agreement. Negotiating is a skill that is developed slowly and that requires nuance.
- A network of colleagues and service providers. Real estate deals involve a considerable number of people. A real estate professional is often aware of sales leads and will be able to refer you quickly to the specialists you need to carry out due diligence and other vital steps in the sales process.
- Deep knowledge. You might be surprised to find out just how many deal options you have and how they can be used to your advantage. Again, experience is essential, as is advanced training. Knowledge of the local real estate market and an understanding of accountancy and the tax system, plus a bit of ingenuity, can lead to solutions you might not come up with on your own.
If you intend to make a 1031 exchange or partial exchange, a real estate investment management firm might offer the opportunities and services you are looking for. By exchanging your property for an interest in a property managed by a professional company, you receive a true passive income and all the advantages of high-quality professional management.
Whether you are selling your investment property or exchanging it, you want to get the best deal possible. Taking advantage of professional services is likely to improve your experience significantly by focusing all the accumulated knowledge of a staff of specialists on your transaction.
At CWS Capital Partners, we are a fully integrated multifamily real estate investment management firm that offers everything from due diligence and multifamily real estate valuation to transaction support and property management. We specialize in assisting our clients with 1031 exchanges, acquisitions, repositioning, and development. We also own and manage luxury multifamily investment communities in major markets around the country and employ a team of experts who can help you hone your investment strategy.
For more articles like this one, check out our investment strategy blog posts.
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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
Securities offered by CWS Capital Partners LLC are through an affiliated entity, CWS Investments. CWS Investments is a registered Broker Dealer, member FINRA, SIPC.