Many people decide to invest in real estate investment properties because they are one of the best ways to make money. Selling an investment property is a major decision that a real estate investor would have to take at some point in his/her investing career – it’s definitely not a decision that is made lightly.
Before selling real estate investment properties, property investors need to first understand the different aspects that relate to the selling process and ask themselves a number of questions in order to successfully and efficiently sell the investment property. Here, we’ll cover what a real estate investor needs to take into consideration before selling an investment property, when the best time to sell is, and how to actually sell real estate investment properties. So, without further ado, let’s jump right in!
What to Consider Before Selling Real Estate Investment Properties
Capital Gains Tax on Real Estate Investment Properties
Capital gains tax (CGT) is a tax imposed on the profit (gain) made from selling capital assets which have increased in value after buying them. An example of such assets is real estate investment properties. To calculate the profit or gain, a real estate investor simply subtracts the purchase price from the sales price of the investment property.
The tax on the sale of real estate investment properties which property investors have to pay depends on many factors, such as the type of the investment property, the investors’ income, and the size of the gain made. Moreover, regulations for paying capital gain tax vary in different countries and different states, thus, make sure to check those in your real estate market before you sell an investment property.
For property investors selling real estate investment properties, there are online calculators which could help them estimate the capital gain tax they should expect to pay. In addition, a real estate investor might find possible ways to avoid paying this tax.
Hiring a Real Estate Agent
The next thing to take into consideration is your real estate agent. First, a real estate investor has to decide whether he/she is selling an investment property with the help of a real estate agent or not. Some opt to sell their investment property on their own (for sale by owner); however, real estate experts always advise property investors to hire a real estate agent when both selling and buying real estate investment properties.
Agents are professionals who have been in the real estate market for a long time. Thus, they’ll definitely be of great help to a real estate investor selling real estate investment properties. They know how to conduct a real estate market analysis, how to set the right sales price, how to advertise the investment properties, and how to find potential buyers and close the transaction.
It’s important here that you find an experienced real estate agent, who has a successful track record of selling real estate investment properties in your area, and who is someone you can trust. Moreover, real estate agents will always give smart advise, so listen to their recommendations and act wisely!
Preparing Real Estate Investment Properties
Before you list an investment property for sale, it’s important that you ensure it looks good and desirable. It’s not a good idea to sell an investment property while it’s in the same state as if you are still living in it. Thus, remove your personal belongings and make the investment property in a ready-to-move-in shape from both the inside and the outside.
Major renovations are not really necessary; however, you do need to identify and fix minor repairs. For example, make sure all the lighting is working properly, the garden is free of weed, maybe even repaint the walls. Use an objective point of view to see these issues – a home inspector or home appraiser would be of great help at this stage of preparing to sell real estate investment properties.
Setting The Sales Price
The sales price of an investment property is another important thing to take into consideration before listing real estate investment properties for sale. As a real estate investor, you want your sales price to be competitive to attract potential buyers, but at the same time, it needs to get you the highest returns – this is, after all, the main reason many property investors decide to list their real estate investment properties for sale.
A number of factors play a role in determining the right sales price for an investment property including its features, type, size, location, and the initial investment made on the investment property. Another important factor is the real estate market itself. As a result, it’s crucial for property investors to conduct a real estate market analysis – compare their real estate investment properties to similar properties that were recently sold in their area – to estimate the right sales price.
However, this is more easily said than done. Not many property investors know how to conduct a comparative market analysis which is, in fact, why those selling an investment property without a real estate agent fail to set the right sales price and find potential buyers. As mentioned before, real estate agents are familiar with this process, meaning hiring one will increase the chances of selling real estate investment properties faster!
The Best Time for Selling Real Estate Investment Properties
Naturally, the best time to sell real estate investment properties is when property investors guarantee a high return (gain) on the sale. This can only happen when the real estate market is a seller’s market. What does a seller’s market mean? Well, a real estate seller’s market means there is more demand for real estate investment properties than the available supply.
Because the number of property investors looking to buy investment properties outpaces the number of available real estate investment properties for sale, a seller can increase the sales price of the investment property thanks to the big interest and the lack of competition. On the other hand, when the real estate market is a buyer’s market (when there are more real estate investment properties for sale than there are real estate investors looking to buy), sellers will have lower chance due to high competition.
Consequently, the best time to list an investment property for sale is when the real estate market turns into a seller’s market.
How to Sell Real Estate Investment Properties
Advertising Real Estate Investment Properties
Even a well priced investment property isn’t going to sell if potential buyers don’t know it exists! This is why advertising is an important step to selling real estate investment properties. A real estate investor wants to expose an investment property to as many potential buyers as possible. Advertising strategies range from “For Sale” signs, through ads in local newspapers and online listing sources like Craigslist, to the MLS (Multiple Listing Services).
This is another step which requires a real estate agent’s help. Agents have marketing strategies to generate leads and find the best potential buyers for real estate investment properties; they know what potential buyers are looking for in an investment property, in addition to how to highlight the qualities that attract potential buyers to an investment property. Moreover, a successful real estate agent would already have potential buyers in his/her network.
Showing Real Estate Investment Properties
After preparing real estate investment properties and advertising them, the next step would be to host an open house (or a showing) for potential buyers who are interested in having a look at the investment property. For a successful showing, your priority is getting a good first impression! Therefore, make sure the investment property is clean, keep it simple, give your visitors space, and provide them with information that would increase their interest in buying the investment property.
A successful open house will get you purchase offers. A real estate investor selling real estate investment properties reviews each and every purchase offer and eliminates those which don’t meet the sales price.
Negotiating and Closing the Deal
After eliminating offers that don’t work for you, you’ll be left with a few that work better for your goal but are typically still not perfect. Here, it’s time to negotiate these offers to come to an agreement that makes sellers and buyers of real estate investment properties happy. Keep in mind that as long as negotiations are ongoing, there is a higher chance of closing a transaction. Thus, the best thing is to be flexible throughout the negotiations to keep them open.
Once again, if you’ve hired a real estate seller agent to help you in the process, then your agent will be more than suitable and capable of handling the negotiations, which typically includes a buyer agent as well. Therefore, make sure your real estate agent fully understands your goals for selling an investment property and the gain that you’re trying to achieve. This enables the agent to negotiate more effectively and, in turn, helps you reach your goals of selling real estate investment properties.
Selling Real Estate Investment Properties – Conclusion
Selling an investment property is an important decision to be made at some point in a real estate investor’s career. It’s not something to be made on the spot and carried out immediately – this will actually result in either selling an investment property for a lot less than it might be worth or, even worse, not selling an investment property at all.
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