The real estate industry has always been a niche that is constantly evolving and thriving. In it lie numerous opportunities for forward-thinking investors, and property developers abound. Different investment types in this industry can take various forms, such as residential properties, commercial development projects, industrial, retail properties, land, and mixed-use developments. It is also possible to invest in real estate-related company mutual funds and stocks.
There are many reasons you, a real estate investor, may want to sell your real estate investment. From scoring big wins to minimizing expected losses, there are countless reasons investors sell their real estate investments. Here are some of these reasons.
1. To diversify your investment portfolio
Did you know that having a geographically diverse investment portfolio makes you a resilient investor? Just think about it; if you had all your eggs in a single basket and it happens to be in a region devastated by natural disasters or the local economy collapses. You would suffer considerable losses, wouldn’t you? Fortunately, having real estate investments in different locations can cushion you from a potentially significant loss.
Also, by expanding your search for a real estate property, you can successfully invest in landlord-friendly states, states with zero property taxes, and invest in class D and class C assets to boost your cash on cash return. It’s also possible to manage your real estate assets remotely, though, given the tasking nature of property management, you may want to hire a property manager.
If you plan to diversify, consider using the profits of a property sale to acquire an equal or greater value property to deter your capital gains tax. This is an excellent idea if you plan to continue investing rather than converting your assets into cash.
2. You intend to stop manage your assets remotely
Another reason to sell your real estate investment is to stop managing your assets remotely, whether or not you have hired a property manager. After all, some investors want to be close to their investments and manage them personally. One way of achieving this is to sell other properties in other locations.
3. You plan to sell an inherited property
Once you inherit real estate assets, you have many options. Selling the property is one of the many options. If that’s the case, you may want to inform the individual currently owning the property before they fund it into a trust. This is because taxes on deferred gains from property sales should not be paid if the individual performing the transaction dies, and the heir inherits the replacement asset.
In this case, the replacement asset will be received on a stepped-up basis. That means the asset should be treated as if the value is equivalent to the asset’s fair market value. For example, suppose you started a real estate investment with just $50,000 worth of property, and after a series of 1031 exchanges, you end up with assets worth $1 million. Rather than paying capital gains taxes on $1 million worth of property, your heirs will not pay capital gains taxes.
This is one of the best ways you can pay less real estate tax.
4. You’re changing your real estate investment strategy
Some real estate investors sell their real estate investments because they want to change their investment strategy. In that case, it is recommended to evaluate your real estate investment plan. According to analysts, there are different investment strategies, and you may want to choose the one you can switch to. These include buying and holding properties, investing in real estate properties, real estate investment trusts, flipping properties, and buying, rehabbing, renting, refinancing, and repeating properties. Snowballing is also a great real estate investment strategy.
5. You want to quit real estate investing
If you are considering quitting real estate investment, it’s essential first to consider all the benefits associated with real estate investments you will be leaving behind. Some of these benefits include a regular income stream, investments that appreciate over time, tax benefits, less volatility compared to the stock market, and liability protection and legal entity-specific tax benefits.
In case you are considering getting out of the real estate industry because you have plateaued or simply having a challenging time finding more money, do not forget that there are other ways of scaling your portfolio. For instance, it is possible to invest even when you have bad credit or no credit history. You can also find different financing options out there. If you still want to quit real estate investments, then go ahead and sell your properties.
6. You plan to invest in a different type of real estate investment
Another reason to sell your current real estate investment is to acquire a different type of real estate. After all, there is much more than residential properties out there. Some of the different types of properties you may want to acquire include retail properties, commercial development projects, hotels, raw land, office spaces, data centers, and parking lots. It is possible to sell one type of real estate to acquire another type of real estate investment.
7. Time for significant repairs
Suppose your current property requires significant repairs, and the cost of the entire renovation project is likely to lead to negative cash flow for a long period. In this case, you’re better off selling the property. Just do the math and estimate the entire cost of renovating your property. If you realize that the costs outweigh the benefits, then it’s better to sell the property.
It’s up to you
It’s up to you to decide whether you want to sell your property or not. But if you are stuck in terms of the best option, consult with Advantage Realty & Land Management. We have been helping investors make well-thought-out real estate investment choices for decades. So don’t hesitate to schedule a consultation call with us.