Selling Investment Property
Selling an investment property creates a unique set of challenges that a typical homeowner does not have to consider. This varies based on the type of property but selling residential homes with a tenant can be extremely challenging. As an investor you want to obviously maximize your selling price and at the same time minimize the amount of income taxes you pay since investment properties are taxable income. Here are some tips to help:
- If it is a residential property in general it is best to sell with the tenant moved out. Tenants, for the most part, do not get the home show ready so the house is not presented the best. On top of that, for a homeowner to purchase the home they must move into the property within 60 days of closing. The new buyer must honor whatever lease you have in place. The tenant being there limits the buyer pool just to investors and they are always seeking to get a good deal. Homeowners often have more emotion in their decision making than just looking for a deal.
- You should consider the tax consequences of selling the property. It is always advisable to wait at least 1 year after purchase before selling so that it is taxed at the lower long term capital gain tax rate. Turning a property quickly will increase the tax rate you pay. If you do not need the money from the property immediately you could consider a 1031 exchange to push property taxes off and not pay them today.
- Many people believe that investors do not have to disclose property defects because they have never lived in the property. This is not actually the case. You are still obligated to disclose everything you know about the property if it is a single family home. Often investors actually know more about their property because they keep receipts for taxes or they have a property manager who sends monthly reports.
- Investors should think about their reason for selling. If you are just sick and tired of dealing with repairs and tenants then professional management is a great option to keep investing in real estate without the headache. For that you can talk to our friends at Crosspointe Management Group. If you like the investment of real estate but need some cash from the property doing a cash out refinance can help you avoid the tax hit from selling. Visit with Legacy Mortgage to get current rates on doing that to determine if you can meet your goals.
We would love to help determine if selling is the right time for you. Just provide some details below and we can schedule a no-obligation consultation about your investment property.