So now you’ve decided to sell one or more of your properties. The following are steps you can take to accomplish this
1. Factor In the Tax Implications of Selling
You want to factor in all the costs of selling when evaluating whether it makes sense to sell or not. When you sell an investment property, your profit or gain is subject to either short-term or long-term capital gains tax.
Under the current tax law, if you have owned an investment property for less than a year, your gain is taxed at your current income tax rate. Long-term investments are typically taxed as capital gains at 15% or 20% depending on your tax bracket.
You’ll also need to pay tax on “depreciation recapture” when you sell a long-term investment. Depreciation is a tax deduction you take annually when you own an investment property. Whether you took the depreciation write-off or not, the cumulative value of that annual deduction becomes taxable income when you sell.
2. Prepare Your Property for Sale
The age-old question is which improvements and repairs will pay off in the sale price you get. Perhaps it makes sense to undergo a small or large property renovation before you sell. Or maybe it makes better sense to sell it “as is.” The choice depends on local market conditions, your investing goals, your available cash, and your risk/reward tolerance.In my experience, it’s often best to do all deferred maintenance before you put your home on the market. When you sell, the would-be buyer hires an inspector to create a detailed report on the home’s condition. It’s the inspector’s job to comment on and inform the buyer about every little thing he finds. Many items are nitpicky, but an inspection report showing a long list of repairs can scare away your buyer.
Also, it’s not unusual for buyers to expect sellers to repair everything the inspector points out. And on their realtor’s advice, the buyer will probably require that a licensed contractor make all the repairs. I’ve looked at many inspection reports and found that many “asks” are minor repairs that you or a handyman can do without hiring a licensed specialist. If you do them ahead of time, you can save money on the repairs.
On top of that, taking care of deferred maintenance before you put your home on the market will help it show better. Buyers may see a minor thing and wonder what big things exist that are not obvious. Fixing everything before buyers start walking through removes objections before they even pop up in the buyer’s mind.
3. Hire a Successful Local Agent
Hiring an agent saves you a lot of work and worry. And you will likely get a higher selling price in a shorter amount of time. Yes, you will pay a commission, but having a local, professional, and knowledgeable insider representing your interests in a transaction as large as the sale price of a typical home is arguably worth the money.
Like any profession, there are excellent, average, and sub-par agents. And you pay essentially the same commission to any licensed agent. So put in the time and interview a few agents to find the one who can best represent you. Research their success, read their reviews, talk to a few former clients.
Hire a great real estate agent and then leave the selling process to the professional. If you need help finding a good agent, you can use a free service like HomeLight, which connects you with the top three real estate agents in your area.
4. Price the Home Right and Market Aggressively as Soon as It Hits the Market
Time is of the essence when selling a home. The biggest mistake I see sellers make is setting the listing price too high. The housing market operates by the forces of supply and demand, which keeps prices competitive.
Your property’s market value is not determined by what you paid for it, how much you spent on renovations, or what your uncle would pay for it if only he had the money. It’s the price a willing buyer and seller agree to. And that price is based on the market value of similar nearby homes available for sale at the time you want to sell.A house that’s priced too high will languish on the market and be stigmatized. In addition to the neighborhood and price comparisons, buyers and their agents look at “days on market” as determining the price they offer. Once those days start adding up, buyers think, “There must be something wrong with the house, or it would have sold by now.”
Even worse, sometimes a buyer makes the assumption that since time is ticking by and the seller obviously has monthly holding costs, the seller must now be more motivated to sell. So the buyer submits a low-ball offer.
Research shows that, more often than not, over-priced listings take longer to sell and typically sell for less than a competitive market price.