The Seven Mistakes to Avoid When You Sell an (investment properties) Apartment Project
No commentsBy Darin Garman
”How You Can Spot and Avoid the Seven Mistakes that Can Literally Ruin Your Apartment Investment - Making Sure You Make Money When You Sell an Apartment Project…Avoiding the Surprises that Can Cost Thousands of Dollars.”
Even though investing in an apartment property is becoming more and more ordinary, selling a project correctly is like finding an honest politician. Plus, when you put a property on the market at a time you think may be “the right time” you’re nevertheless subject to those SURPRISES that can cost thousands and make that “fantastic investment” a real loser. You can prevent your next sale from being a loser by avoiding the subsequent mistakes:
1. Not Putting Yourself in the Buyers Shoes.
You practically need to purchase the project over again in your mind and ask yourself , “based on the future of the location and condition of the property will a buyer find the property attractive?” If you hesitate in saying “yes” you must absolutely do more analysis as to the salability of the property and the area.
2. Not inspecting all units prior to putting the project up for sale.
Most of your apartments you are familiar with but what about the ones that you haven’t been in more than a year? Be certain that previous to selling you go through the apartments AGAIN to be confident that you (and the buyers) will not experience any surprise repairs, pets or guests. One inferior apartment might cost you thousands on the negotiating table.
3. Work only with accurate income and expense figures.
Save yourself a ton of time and money by working with realistic figures. By selling the property based on the rent you think you can get and lower expenses that you think a new manager might get just won’t cut it. Be realistic - buyers will be aggressive when the figures are actual not projected.
4. Do not sell without investigating a tax deferred exchange or contract sale.
If you have had your project for a extended time it is in your best interest to review with an expert about a tax deferred exchange or installment sale. These strategies could save you literally thousands in taxes. This ought to be the very initial thing you do prior to putting your project on the market.
5. Work with an experienced broker that will work smart and protect your interests at the same time.
The best brokers specialize in apartments and have a designation such as CCIM or SIOR. Do not work with a Realtor that has open houses on Sundays and presume them to know how to help you in a lucrative marketing campaign of a project. Prior to working with them be sure to ask how many units they have sold! Get references, ask how they will market the property and verify their track record.
6. Not examining and maintaining the project ahead of the sale. Don’t let repairs and repair work go - get it taken care of NOW. Sometimes its hard to justify some of the costs of keeping the structure(s) properly maintained but think of it this way - IF YOU DO NOT PAY FOR THE CASH NOW TO MAINTAIN YOUR PROPERTY THE BUYER WILL - IN TERMS OF DISCOUNTING THE VALUE FOR REPAIRS HE WILL HAVE TO PERFORM TO BRING IT UP TO “PAR”
7. Not factoring in sufficient vacancy and reserves. Remember you may not like it but the buyer, appraiser and banker will figure in vacancy and management costs even if you have no vacancy and if you manage the project yourself. In putting your numbers together use existing rates for vacancy and management.
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About the Tax Deferred Exchange and How I Hate Them AND the Reasons Why I Do
By Darin Garman
As we all understand there are a lot of great ways to use an exchange and defer your capital gains assessment but that is what you hear from individuals trying to sell you something. Make sure you are conscious that you have to follow these essential steps in completing a profitable exchange:
a) Give yourself sufficient of time to identify a replacement property.
The IRS rules are generally 45 days to identify a replacement property and 180 days to close on the property. Do Not Sell with a short identification window, particularly if you have not found a replacement.
b) Do not inform sellers you need to complete an exchange.
This one still confounds me. I get calls all the time from other brokers or buyers saying “I have to find a property to complete and exchange” Let me ask you a question. How much negotiating leverage do you have if the other person across the table knows your exchange countdown is ticking and if you don’t buy a property quickly you will pay a hefty figure to Uncle Sam? Not a smart idea. There are strategies to use to make sure it is in the offer without informing the seller. This is imperative. You will literally lose thousands of dollars if this is not done properly.
c) Use possession dates intelligently.
Make sure you put the possession dates out as long as feasible on the property you are relinquishing to complete an exchange. This provides you quite a bit more time to find that replacement. You may even want to think about some kind of option agreement vs. a straight purchase agreement.
d) Have excellent help and advice.
Whatever you do make sure all parts of your team be familiar with exactly what you desire and how to get it for you. This includes your lawyer, tax advisor, Realtor, etc. Do not use Alice having open houses on Sunday attempting to help you complete an exchange on Monday, you will fail.
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Saturday, September 26th, 2009 at 6:06 am and is filed under realestate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
