501: Season Five Opener—Reasons to Sell & When to Sell
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Episode Transcript
Welcome to Episode One of Season Five of the Growing Empires show. This season is all about selling your investment property and today we're going to talk about reasons to sell and how to know when it's time to sell so that you can capitalize on the appreciation and profitability of your property. So stay tuned.
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Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments. For those who want to build and manage a more profitable real estate portfolio.
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Have you considered selling your investment property? It is important that every year as an investor, you analyze your property's potential for sale, for profitability, and to really make sure that you are maximizing the property to its fullest potential. Today, we're going to talk about reasons to sell and how to know when it's time to sell or if you should consider selling. But this season, we're going to go into detail about everything else that you need to know about selling your investment property. We're going to talk about how to squeeze out every penny. Literally how to prepare your property for sale so you get the biggest bang for your buck. We're going to talk about marketing tricks that you need to know so that you can strategically place your property and cast the widest net to get a buyer that's willing to pay top dollar for your investment property. We're going to talk about how you price your property for sale so that it's competitive in the market. We're going to have a question and answer segment as we do every season and these questions and answers will be from our guests and specific to our theme this season, which is selling your investment property. We're going to talk about what to do with the money once you sell and if you should consider capital gains and how to reinvest that money. So I'm really excited to get started. And today we're going to dive into reasons to sell and when to sell. So let's first talk about some reasons to sell. And this is not an all inclusive list. These are just some of the more common reasons that people consider selling their investment properties. Number one is you need the capital, you simply need the capital for something else - could be another investment, could be a major life change or event, it could be anything at all that has to do with life that requires you to need the capital or the equity that's already in your property. There could be signs of economic change happening that are going to impact you or impact your rental property in a negative fashion. That could be a reason why you might want to consider selling. Maintenance is too high on the building. Year over year, your maintenance is really high, you're not making good cash flow and you seem to not be able to get your building in a condition where it can be maintained consistently. Perhaps you have negative cash flow on the building, that could also be a time to sell. Maybe you don't live locally, or you don't have proper management in place and that is causing you to have some struggles. And maybe you intended to have a passive investment vehicle and it no longer is a passive investment vehicle. That could be a reason to sell. Perhaps your long term tenants leave and you're concerned about the ability to re-rent your property. Your rental income may be stagnant, your taxes could be increasing, or maybe your building has reached its full depreciation capabilities for tax purposes, or your building has reached its full appreciation. Meaning that no matter what you do to the building, you really can't increase rents, make the condition any better, and there's really no way to make more money out of that property. That's when your property is reached his full appreciation and that also could be time to sell. Perhaps other real estate sectors look a little bit better to you at this time. Maybe market conditions are strong. And instead of it being a negative reason to sell like you don't have good cash flow or your maintenance is high, maybe you want to capitalize on the fact that the market has taken a drastic turn. And now it's a seller's market so you may want to capitalize on those market conditions. Perhaps your loan terms are ending. Maybe you were in a balloon payment, or maybe you were in a five year fixed note and the term of the five years is coming to an end and maybe the interest rates have changed and have gone up. That could be a reason or maybe you're just getting to the point where you've paid off all of your debt and now you can perhaps trade the property or cash out on your equity position. Perhaps there's some tax code advantages that you want to take advantage of. I will say this though, when you're selling an investment property it’s really important that you hold for at least one year to avoid short term capital gains. We all know about long term capital gains. But did you know that if you sell your property and under a year from the time that you acquired the property that you're actually subject to short term capital gains? So keep that in mind and you definitely want to talk to your tax advisor regarding that.
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So let's talk about when to sell. One of the things that I do with my investors every year is I have what I call a yearly review, for lack of a better term. And what we do in that yearly review is we look at the property's cash flow. We analyze how well the property did, whether it had positive cash flow, negative cash flow, and the reasons why one or the other happened. We look at the income and how consistent it was, did we get increases in the year? We look at the expenses. Are the expenses consistent? Was there anything out of line? Was there anything that we could have potentially saved on this year? Are there things that we're looking to prevent? Or is it time to put capital improvements into the property. And then once we have that information, we also look at the current value of the property versus what they bought the property for, and what they've accumulated in profit over the years that they've held the property. Then we go into talking about the highs and lows of the market, we talk about what the market is currently doing, and whether or not it's a seller's market or a buyer’s market. So maybe you haven't fully appreciated your property, or maybe you haven't reached the full depreciation capabilities for tax purposes. But perhaps the changes of the market make it a crucial time to sell. And those are things that you're going to want to consider. Now the only way that you can actually consider this is number one, if you look at it. Even if these investments are passive investments, you want to make sure that you are not so passive that you don't actually look at what happens every year. Just like you do your taxes every year, you need to look at your property's performance. And you need to make sure that your property is performing the way that you intended it to. And if it's not, you need to make changes. And if there is a way that you can pull out equity and reinvest that equity in a another potential investment that's going to double or triple your net cash flow, you're going to want to highly consider that and a lot of that is directly impacted by the changes in the market - the highs and lows. Right now we are in this crazy market in the Lehigh Valley where the prices are skyrocketing, and cap rates are dropping drastically overnight. So for sellers, it is by far a seller's market, there is low inventory, high demand, and it is just an absolute perfect time to consider selling your property.
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The episode will continue in just a moment.
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To make the most out of your investment property sale, you will need a team that understands the market fluctuations and how to capitalize on that demand. Knowing the market trends and forecasting economic changes is critical to your success. Having an expert by your side to help you buy low and sell high is the only way to create true wealth. When you need help analyzing your portfolio to maximize your return on investment, there's only one person you need to call and that's me. I will help you analyze your portfolio and increase your profitability year over year and that's my guarantee. Schedule a call with me today at Growing Empires.com. That's Growing Empires.com, and I'll help you create the life that you desire with passive real estate investing.
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Now for a lot of the investors that I've talked to over the last couple of months, you know, one of the things that we talked about is that the intention was never to absolutely sell these properties. A lot of people buy and hold and intend to hold for 5, 10, 15 years or longer but you've got to look at each property as an individual stock, let's say. No different than the way that you would watch the stock market and decide when to pull out, you actually need to watch the real estate market. So even though you go into a property thinking I'm going to potentially hold it, you know, 5, 10, 15 years, if the market has dictated to you that it's now time to consider selling, you'd be foolish not to and really take advantages of those market changes. Over the last year there are so many investors that we have helped pull out a significant amount of appreciation on their buildings, reinvest that money, and almost like double up or sometimes triple up. What we've watched the market do is absolutely crazy. And there is no better time in my opinion than to consider selling if you are in our local market, and your property has had some good success. I want to give you just one example right now we're helping an investor that has only really held the property for about two years. And of course, this was a purchase that was intended to be a 5 or 10 year hold, but he bought the property around $400,000. And I would say at a maximum he put $80-$100,000 in over the course of the two year period between capital improvements and just natural turnover and capitalizing on bringing the cosmetic appearance of the building up. That property is currently on the market today and we are expecting to sell that property somewhere between $900,000 and a million dollars. Now, we shouldn't do that if we are not confident that we can take that money and reinvest it and make twice as much or three times as much, because it's great to get the equity out but if you've got nothing to do with that equity, you've just defeated the purpose of having the actual investment property. So when the market is high, and it's a good seller's market, that means for buyers, it's super competitive. So if you're going to play this equity card, and you're going to pull it out, either by way of a refinance, or you're going to sell the property and cash out, you're going to want to make sure that your next investment opportunity is something that's going to double or triple your current cash flow. Otherwise, you're going to want to consider not actually selling. Another thing to consider of when to sell as interest rate changes, because again, we're talking about that buy and hold strategy, that sale and then potentially a purchase, right. So if interest rates have dropped drastically, that's a great time to buy or leverage up on a new property. So that could also be a great time to even just refinance your current property. So interest rate changes are a great reason to sell as long as they're favorable, of course. And another big thing to keep in mind is that although you're focusing on what's happening in the local market, you really do need to focus on what is happening in the surrounding market, because the surrounding market may impact in a positive or negative manner. So for example, something recently that just happened in a state around us is rent control was put into place. Well, that has drastically increased the amount of people that are contributing to our marketplace, because they are taking their money out of their investments. And they are moving those investments into our local surrounding area. So they're actually artificially inflating our prices, which makes it super competitive when you're buying. And there's a lot more competition because there's now more investors in this local area.
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These are not things to be scared of, though, this is really what investment property ownership is all about. It's, again, like I said before, no different than a stock, you've got to figure out the highs and lows, you've got to know what's happening in the market, you've got to know what the impacts are of the financeability on these properties, both for your potential buyer or when you're buying properties, whether or not the refinances makes sense. And you're going to want to make sure that you're really cognizant of what's happening in the markets around you, that will either artificially inflate or deflate your current marketplace. But when it does come time to sell, or even talk about reasons to sell or considering selling, you're gonna want to make sure that you have an expert in the local market, you're gonna want to make sure that you have somebody that has time tested experience in selling your investment property. All real estate brokers are not created equal. And if there's anything that I can add to you as a value for you to consider is when you are selling investment properties, it is a business decision. So if the person that is selling your investment property is not invested in your business in some fashion, you're not going to be successful at really capitalizing on making the most out of your investment property. You've got to have a market expert investment property sales are not for the faint of heart. And if you don't have significant experience, you're not going to really get every penny out of that property as you intended. I hope you've enjoyed today's episode. Until next time, take care.
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For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit GrowingEmpires.com.