Wow, you blinked, you effectively completed your long term investment strategy, and now you are ready to start selling investment properties!

You successfully paid extra toward your rental property mortgage principal each and every month and you’re anticipating a huge profit. Now all you have to do is sell your multi family properties and retire to Tahiti (ok, maybe not!).

SELLING COSTS

Your costs when trying to sell investment property will generally boil down to the following:

• Agent commission / other selling expenses
• Transfer tax (depends on the state)
• Long-term capital gains taxes (currently 15%)

Obviously, your agent will manage the process of selling rental property, and the seller (you in this case) is the one who pays the agent’s commission. Don’t bother doing a for-sale-by-owner (FSBO) routine because any money saved will be neutralized by the additional time and stress involved with trying to go it alone.

Assuming you have an excellent relationship with your agent, he/she will most likely be willing to come down from the standard 6% commission. My agent only charges 4.5% because of all the business I’ve thrown him over the years. Remember, everything is negotiable!

The last 2 costs I listed when selling investment properties are tax-related. Transfer tax varies by state in terms of who pays and how much, so ask your agent for guidance. Conversely, capital gains tax is at the federal level and does not vary from state to state.

SETTING YOUR PRICE

Obviously, you’ll want top dollar when selling investment properties. The sale price will largely depend on:

• Similar real estate comps
• The nature of the real estate market
• The neighborhood
• The desirability of the property itself
• The rent roll

Again, to sell property you will set your sale price based on input from your investment property agent. He will know what similar properties have sold for in the neighborhood, as well as the nature of the market at that point in time.

The desirability of the property itself is obviously critical as well. Some of this will be set in stone – for example, the number of bedrooms per unit, whether a duplex is side-by-side or up-and-down, etc. But there are clearly some quick and easy things you can do to enhance the property’s curb appeal .

Another key factor in determining the price is your rent roll. Your sell price will be highly dependent on the property income side of the equation, which is why it’s important to regularly increase rents over time.

Many investors use the 1% rule, which means that the monthly rental revenue of the property should equate to approximately 1% of the sale price. For example, if you’re collecting $2,000 per month, then the property will be valued at $200,000 ($200,000 x 0.01). Some people may also apply this rule to the mortgage amount as opposed to the purchase amount.

In any case, you know by now to be careful of any rule of thumb, I just mention it here so that you are aware of it whenever you are selling rental property.

RANDOM THOUGHTS

A few miscellaneous tips & tidbits to keep in mind when selling investment properties:

• Expect your property to be up for sale for anywhere from 2-5 months on average, depending on the nature of the market at that point in time.
• Be patient and do not jump at the first offer.
• Figure out the minimum price you require and use that as the bottom point for your negotiations.
• Never ignore a bid even if it’s so low it offends you – always use counteroffers to bring the bid up because you just never know how things will work out.
• Consult with a property attorney to discuss the tax ramifications when you sell property.
• If you’re selling investment properties in a buyers market, consider holding on for another year or two and resume selling once the market improves.