I’ve been hearing from many people with investment properties who want to sell in this hot real estate market but already have tenants in place. Can they do that? The short answer is yes, but there are five things you need to consider in a situation like this:
1. All the terms you already agreed to will remain unchanged. Your tenant needs to understand this as well so they don’t get nervous as you start to market and show the property.
2. Think about why you want to sell. As you know if you’ve been paying attention to the market lately, inventory is exceptionally low and demand is high. Sellers can sell for top dollar even with a tenant in the property.
“If an investor buys your property, they’re also buying your cash flow.”
3. Consider the selling costs and net profit. When we sell a property with a tenant in it, typically prices will be slightly lower. When we look at the net, however, we have to take into consideration additional vacancy for turnover and the renovation costs associated with it. For investors in today’s market, many times the net is very close to what you’d get on the active market.
4. Prepare yourself and your tenant. The person who buys your property will also purchase that cash flow. We want to provide them with good financials that show you have a decent, quality tenant in the property.
5. Understand the tax implication. If you’d lived in the property for two of the last five years, you could potentially sell tax-free. If you haven’t resided in it, do you want to roll the tax expenses into another property via a 1031 exchange? It’s a great way to increase your portfolio while deferring taxes. It might make sense to pay those capital gains taxes while rates are still low.
If you have questions for me about this topic or anything about real estate in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.