Loan is maturing. 

  • Ballon loans - 5 years or less - Payment is due in a lump sum
  • Intermediate term loans - 3 years - Paid in monthly installments
  • Long-term loans - 20, 25, or 30 years - Paid in monthly installments
  • Do you arrange for a new loan or sell?
  • Some investors prefer to just sell the property, exchange into a new property, and get a new loan, rather than going through the tedious process of lining up new lenders.
  • Note: Consider pre-payment penalties on a new loan that may affect your exit strategy.

7 REASONS TO SELL YOUR REAL ESTATE ASSETS

Upcoming Tenant Vacancy.

  • Tenant vacancies decrease value.
  • In the case of a lease expiration, a vacancy could result in a major loss in value.
  • Consider the time factor to replace a tenant without that scheduled income.
  • Consider the cost of tenant improvements or tenant concessions.
  • It's possible to sell a property with two or more years remaining.
  • Or discount the sells price to reflect a value-add opportunity.

Death of the Owner.

  • The heirs may be unwilling to manage the property.
  • If there is any deferred maintenance it may make more sense to sell the property allowing the buyer to create value through capital improvements.
  • They might prefer to cash in on the profits and re-invest the proceeds into another investment property.
  • Heirs can take advantage of the IRS tax code regarding the step-up or step-down cost basis at fair market value to eliminate any capital gains tax from the previous ownership.

The property is too much work.

  • The property may require renovations, or
  • A multi-tenant property has too much turnover, or
  • The investor finds that they don't have the time required to invest in the property.
  • Some investors decide it's easier to sell, and exchange, into a less intensive management property, such as a single-tenant net lease investment.

The partners are dissolving their partnership.

  • Partners separate for many reasons - their goals no longer align.
  • They may sell the partnership assets and split the proceeds.
  • Each partner may decide to exchange into other real estate assets separately.

Reduce tax liability through depreciation.

  • The larger the value of the property, the larger depreciation can be claimed.
  • Depreciation is based on the useful life of the property (building only, not the land), as determined by the IRS, typically 39 years on a commercial investment property.
  • Some sellers prefer to sell a property that has appreciated significantly, so they can trade
    into a larger asset and enjoy the benefits of reducing or even eliminating their taxable
    income each year.

Diversify a portfolio.

  • Sometimes an owner ends up with an imbalance of properties in their portfolio that puts
    them at risk.
  • Property types, locations, or tenancy.
  • The property isn't performing like the investor expected it to.
  • The owner might choose to sell the property to reduce risk, increase diversification, or
    increase cash flow.
Obtain a 'Property Valuation' for your commercial property nationwide.
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