Starting Your Own Real Estate Investing Empire
Starting Your Own Real Estate Investing Empire
When it comes to preparing for the future sale of your investment property, there are numerous factors to consider. While this is just a rough overview, it's important to keep in mind that every situation is unique and may require specific attention to certain details.
There is comparing apples to apples and then there is comparing Honeycrisp apples to Honeycrisp apples.
Before making any decisions, it is crucial to consult with your accountant regarding the potential capital gains taxes associated with selling. This information will assist you in making an informed decision. If you require the services of an accountant, we are more than happy to provide a recommendation.
Valuation: income propery vs user property.
When considering selling a property as an investment, a key factor that attracts potential investor buyers is the cap rate. The lower the cap rate, the higher the value of the property. Honeybricks has a good explanation of caprate and other details.
It's worth noting that income and expenses directly affect the cap rate so take caution with your calculations. Increasing expenses associated with the property will decrease the income and the amount you have to pay in taxes, however this will also increase your cap rate and could decrese the value of the property.
Similar to individuals who are self-employed and receive cash payments ‘under the table’, their unreported income will have a negative impact when they apply for a loan.
When selling as an income property, you want to clearly deomonstrate that the property has a proven track record of generating consistent and satisfactory income, and you want to show hassle-free operation. Minimizing tenant turnover by conducting thorough evaluations and carefully researching potential tenants will save you money and frustration. The time and care you take here will ensure your investment is protected. When done correctly, this will increase the overall value of the property.
Other factors to consider - if it’s a multi-family property, are all apartments legal in the eyes of the municipality? The last thing an investor wants is to be required to remedy illegal apartment status.
If you want to sell vacant, you will need to stay within the Landlord Tenant rules. The Cash for Keys strategy sometimes works, but not always. Be sure to consult a professional if this is the route you want to go.
Selling the home vacant opens up the options for both users (buyers who are moving in) and investors. Location, conditon and price will still play a major role in the results.
Will it be easier to sell with renters in the property? If the cap rate is low and the tenants are great, location and conditon are great, this will be a very desirable property for an investor, and the right investor will be willing to pay a premium for the property. Any piece of this that is not great will likely have an impact on the sale price.
Because of the limited supply of housing, a user may also pay a premium but will be more concerned with location and conditon. Having a built in income will be seen as a very desirable feature.
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For all things Real Estate Income related we highly recommend reading Robert Kiyosaki as a place to start!
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