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HOW TO INCREASE PROFITS (& REDUCE HASSLE) WHEN SELLING A PROPERTY

Tuesday, August 16, 2022   /   by Bob Cowan

HOW TO INCREASE PROFITS (& REDUCE HASSLE) WHEN SELLING A PROPERTY

How to Increase Profits of your Property
Your Home Sold Guaranteed Realty Bob Cowan



How to Increase Profits (& Reduce Hassle) When Selling a Property


In this red-hot market that most of America is currently experiencing, it can be tempting to cash out your investments, take that (in some cases) larger appreciation and move it into another investment. Maybe you’re tired of tenants and cottages and want to explore notes instead. You may want to explore larger properties or even create syndication deals.

 

While it’s tempting to list a property and be done with it, a little planning can save you time and money!



Selling Rental Properties

When market conditions become more favorable, it is time to evaluate your portfolio and sell some dogs. Properties that aren’t doing as well as you think, ones that are hard to rent for whatever reason, or ones that are just plain weird. Sometimes a property just doesn’t work out, no matter how good the numbers look when you check them out.

If your brand is doing well, now is a great time to sell. But do you sell the place with a tenant or wait until it’s empty?

Occupied vs. Vacant

Both methods have advantages and disadvantages. Selling an occupied property means someone is there to pay the bills while you do the listings, contract and closing on the property – less money out of pocket. If you sell to another landlord, they have nothing to do after closing. A good tenant—complete with a timely payment record—can go a long way toward securing a sale.

However, if someone is looking for a house to live in, an occupied property is not ideal. A property whose lease expires next month can still be put on the market with the hope of attracting an owner occupier, but you’ll usually be selling to a crowd of investors when you try to sell an occupied property. It’s not all bad. Investors understand tenants. But investors also want a deal.

 

Related: 5 Essential Items to Consider Before You Sell Your Rental

Consider these things when selling an occupied rental.

  1. You cannot evict your tenants until their lease is up. The lease applies to the property, not the owner. You cannot leave the property vacant at closing if there are six months left on the lease and the tenants want to stay. You can offer the tenant a buyout – but if they say no, you’re out of luck.
  2. Work with your tenants. Trying to sell a property with tenants in place means that your tenants, not you, are a nuisance. They are also in the driver’s seat. If they don’t clean their unit before showing, you will get lower offers. If they make it difficult to show the property, you may not receive any offers. Consider offering rental discounts for performances or coordinating a weekend performance to minimize their inconvenience. Ask what time they want people to view the property and only accept showings at those times.
  3. Sweet multi-board deal. Landlords care about the bottom line. Telling someone the rent is $1,000 a month is fine, but backing up that statement with written evidence is even better. Have your tenants write up a foreclosure statement stating how much the tenant has paid in rent and the amount of their security deposit. As a landlord, you need to keep good records, so show potential buyers the tenant’s payment history, along with all bills for expenses and repairs.

A vacant property is easier to sell, but you will pay everything until closing. All utilities and all exterior maintenance that tenants may have paid for are now in your wallet. You also need to secure the property – no one living there can be an easy target for burglars and squatters.

However, if it is empty, you can receive performances at any time of the day or night, and you know that it is pure, because there is no one and nothing to pollute it.

Decide what best fits your time frame to sell.

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Legally Avoiding Taxes

At the time of writing (late 2017), you have two ways to legally avoid paying tax when you sell your property. Both are looking at changes in the new tax code, but so far nothing has changed. Be sure to check with your CPA for the latest tax information; there is no fixed time for this to change.


Section 121 Exclusion

The Section 121 Exclusion, more commonly called the “two out of five rule,” comes from the 1997 Taxpayer Relief Act. Prior to the Act, you had to buy a more expensive home in order to defer capital gains taxes. But Section 121 now eliminates capital gains taxes up to $250,000 for single homeowners and up to $500,000 for married homeowners.

But, there’s a catch. (It’s a government program—OF COURSE there’s a catch!)

  1. This is ONLY available for your primary residence. You MUST have lived in and owned the property for two of the last five years. You can still use this to sell a rental property, but only if you meet the two out of five years’ residency requirement.
  2. You can only do this once every two years. Those two years do not have to be consecutive. You can break them up; the time lived in the property just has to be equal to two years.

If you meet these requirements, you can save yourself a ton of money. If you are just shy of the requirements, it can be well worth it to move back into the property to make sure you hit them all.

You should absolutely consult with your CPA before trying to claim this exemption, especially if there is any question if you meet the requirements.

1031 Exchange

You’re even more likely to qualify if the sale of your investment property is a 1031 exchange. While this doesn’t exempt you from capital gains taxes like the Section 121 exclusion, it does defer them, essentially reducing the tax.

Also, since this is a government program, there are rules. Many rules. Just forget to dot the “i” or just cross the “t” and you can blow the whole thing out of the water because you can avoid capital gains tax. And the rules aren’t “common sense” rules either. No, it’s a government program, complete with government agencies, seemingly plucked out of thin air for no logical reason.

First, you need a qualified intermediary to facilitate the transaction. If you are planning a 1031 exchange, start your QI search today. Ask for referrals on the BiggerPockets forums for serious QI. Once you’ve decided on QI, you’ll follow all directions—and ask as many questions as you need to understand the process.

There are hard and fast dates to track, forms to fill out and documents to deliver. Your QI must be included in the sale transaction before it closes and must also be included in the purchase.

The requirements can be very complex, so DO NOT take this overview as gospel. In any case, you must link the QI to the sale and subsequent purchase. Be sure to follow their instructions. Anyway, here’s a quick look:

  1. You have to buy an equal or more expensive property.
  2. Use all of your net proceeds from the sale for the new purchase.
  3. Identify your new property within 45 calendar days of the close of the current property.
  4. Close on the new property within 180 calendar days of the close of the previous property.
  5. Have owned the previous property as an investment property.
  6. You must purchase the new property as an investment property.

There are many more rules to follow, and your QI will be able to guide you through the process. But you MUST get your QI involved in the sale of the current property in order to take advantage of any of the 1031 exchange benefits. Don’t sell an investment property without consulting a CPA and a qualified intermediary.

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Selling a Fix and Flip

There is such a sense of satisfaction in taking an ugly house and turning it into a beautiful, modern dwelling. There is also a nice, fat paycheck at the end if you do it right. This is my preferred method of investing, and I combine it with the Section 121 Exclusion to eliminate capital gains taxes. But this is a plan that I implement from the time I purchase the property. If you have not lived in the home for two years, you cannot eliminate capital gains taxes.

You can still move into it, live there for two years, and then sell. The clock starts ticking when you actually move in, not when you bought the home, so you’ll be adding two years to your selling timeline. Not everyone’s timeline will have two years in it.

Related: Here’s Who You Need to Enlist In Order To Sell a Property FAST

I don’t think it goes without saying that you shouldn’t cut corners or do sloppy work. Of course, every time I say, “It goes without saying,” I find a moment when it needs to be said. Don’t do a bad job and don’t let your contractors get away with sloppy work.

There is some debate as to whether you should start selling your property before the renovation is complete. Although it costs very little to put a “coming soon” sign in the front yard, buyers have no imagination and seeing what a house looks like in the middle of a rehab can be too much for some people. I will not advertise my flips until I am done. I get so much bad feedback from potential buyers who don’t understand the process.

Here are tips for selling a foreclosed home after rehab:

  1. Stage the property. Most people can figure out what to do with a master bedroom or living room, but those weird spaces or odd nooks can be confusing. Buyers have absolutely no imagination, and anything you can do to help them visualize these spots that aren’t obvious can help get your home sold faster.
  2. Make a binder about the home. In this binder, put every appliance manual (with a notation when it was installed if available), all warranty information, the name of any contractors you used, and any other pertinent information about the property.
  3. List (almost) everything you’ve done. Not all improvements are obvious, but that doesn’t mean they’re not important. New doorknobs and light switch covers aren’t something anyone is going to care about or notice. On the other hand, new electric service or plumbing work isn’t visible, but super important to note. Go through the home, room by room, and note everything you’ve done, especially those repairs that aren’t apparent. When you’ve recently purchased the home and are asking a significantly higher amount than you paid for it, you want to make it abundantly clear why you’re asking so much more for the house. Put a copy in the binder and print one out, frame it, and leave it in a very obvious place in the home during showings.

Timing the Market

For every investor who sells right at the top of the market, there are 12 billion missing that top on both sides. Okay, that’s a made up statistic, but I’m trying to prove a point. You can’t time the market. Trying to do that is an exercise in futility.

Someone is always going to sell a house for a higher price than you, just a short time after yours closes.

Someone will always sell a property right before you do, for more money than you are able to get.

You are selling because you are glad to be back. You are selling because you want something different. Sell ??because you have to spend, but sell because it’s time to sell, not because you’re trying to time the market.

Selling your home can be overwhelming. There is so much to do, learn and all the dreaded forms to fill out. In her new book, How to Sell Your Home, agent and investor Mindy Jensen walks you through the process step-by-step, from preparing your home for sale and choosing the right agent for you to closing and beyond.

For more info on what can help you understand how to avoid costly legal mistakes. , visit this link: How to Avoid Costly Legal Mistakes

Author: The Stampini Team

 First Home Buyer  Buying Your Home
Save Thousands Of Dollars San Clemente

  your home sold guaranteed, bob cowan, san clemente, august 2022

Platinum Living Realty
Bob Cowan
120 Newport Center Drive
Newport Beach, CA 92661
949-441-9918
DRE# 01970237

Based on information from California Regional Multiple Listing Service, Inc. as of April 16, 2024. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.
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