Buying and selling real property is central to being a real estate investor — and so is finding the right real estate disposition company.
Strategic decision-making is key to excellent asset management, and knowing when and how to let go of investments is a critical step in maximizing your bottom line. This act of selling an investment is also called ” property disposition,” which the Marketplace Homes real estate agents help investors with frequently.
To pick the right real estate disposition company, you must first understand what happens during a property sale, the pros and cons of this type of real estate transaction, and what kind of company is qualified to handle your real estate assets throughout their entire lifecycle.
What is a real estate disposition?
The term ” disposition” refers to selling any real estate property type. For example, our brokerage assists investors with portfolio dispositions at scale. We can help our clients sell one property or a set of homes at the same time. The disposition process may look different depending on the property owner’s route, and each has its benefits and considerations.
Selling at the right time enables you to capitalize on investment opportunities and unlock finances to take the next step in your journey. There are also other situations in which disposing of an investment is necessary to meet a specific need.
How Does Real Estate Disposition Work?
Different circumstances call for various disposition methods. If you’re on no specific timeline, you may sell a property on the open market and test it to get top dollar. You may also be short on time and want a sure thing, which makes it wiser to sell directly to an investor. You may also exchange your investment or a “like” property through a tax-free 1031 exchange.
- Open Market Sale: Selling on the open market requires the most preparation. The listing agent would set a listing price and negotiate with potential buyers as offers come in. The investor also needs to prepare the home for showings and make any necessary repairs after due diligence to make it pass inspections.
- Sell to an Investor/buyout: If you decide to sell directly to an investor or do a 1031 exchange, there are no showings or marketing necessary since the deal happens between already decided parties. This process is done in-house, with
No matter what route you take, each choice has its ups and downs. However, when you follow the advice of your real estate agent and financial advisor, you can make the best decision about when to cash out or cut your losses.
How to Find the Right Disposition Brokerage
To find a company that sells investments well, make sure that it understands real estate investing on a holistic level. In other words, the brokerage must be familiar with the full cycle of investment needs: from buying the property (real estate acquisition) to selling the property at the right time.
Having a sound understanding of an investor’s needs makes a big difference compared to going to just any real estate brokerage. Not everyone is experienced in finding homes suited for investments (like REO properties or pocket listings), and not everyone is skilled at underwriting to find out if a property is worth buying (or if it’s in a good place to be sold).
These tasks require years of experience from real estate professionals who know the investment business — not just the regular open market dance. These pros understand what to offer on a property to achieve a return on investment if you rent it out, and they know various exit strategies when you’re ready to sell.
When do investors need real estate disposition services?
To Access Cash Flow
In some cases, real estate investors may need to dispose of an investment to access cash flow from equity. This may happen when an excellent investment opportunity arises and selling one gives them access to otherwise locked cash flow.
An investor may also choose to sell to get enough funds to cover a loss and regain financial stability. By quickly disposing of one or more properties, you can use the proceeds to pay off debts, fund newly available properties, or get yourself out of a tough financial spot.
To Cut Your Losses
While investors may purchase properties with long-term appreciation in mind, market conditions can change quickly. Home values or rental rates can dip under certain situations, such as a growing crime rate. In this case, you can dispose of your real estate investments to minimize loss.
Or, perhaps a property’s condition rapidly declines due to a natural disaster or other types of damage. If repairing the investment costs more money than it’s worth, you can let it go and take as much as you can from selling it to cut your losses.
Though selling before your desired holding time means that you don’t earn as much as you wish, you still prevent losing more money due to declining conditions.
To Diversify Your Portfolio
Successful real estate property owners continually rebalance their portfolios to protect themselves against fluctuations within a single asset type or market. This practice is important for long-term investing success.
If your portfolio consists primarily of real estate investments, disposing of one or more properties in exchange for another asset type, such as a multifamily unit, or finding a property in a different location allows you to move money around safely for proper diversification.
When Fixing and Flipping Houses
If you enjoy the short-term returns from flipping houses, then selling right after rehab is the name of the game. List your home on the open market to potential buyers to get top dollar by offering a quality, renovated home. Doing this real estate transaction as quickly as possible after rehab will also reduce expenses related to owning the property.
When the Holding Period is Over
If you buy and hold real estate, there comes a time when you can sell your rental for a significant profit. After a property has given you financial success and developed equity, liquidate your investments and move on. A professional property management company can greatly ease this transition by informing you about lease timelines, enabling you to time the sale right.
Real Estate Investing Disposition Pros and Cons
Every decision has a positive and negative effect, but working with a real estate expert can minimize risks and maximize benefits. Overall, selling at the right time and an acceptable price are two key factors determining whether the disposition is to the investor’s benefit. Here are the specifics.
The Pros of Real Estate Disposition
In property management, getting enough cash flow and profits from your rental properties is critical to success. Acquiring your property at the right purchase price maximizes your chances of having a favorable outcome when you sell too.
1. You can avoid paying capital gains tax through a 1031 exchange.
While an open market sale is one of the most common disposition strategies, capital gains taxes apply to any property that isn’t a primary residence. A 1031 exchange allows the property owner to defer their taxes by using the sale proceeds for like-kind property.
- Do you like tax breaks? So do we. We like them so much that we compiled a list of other investor tax deductions and credits.
- Tip: You may also avoid some capital gains tax through seller financing. To learn more about this method, talk to a financial advisor.
2. You avoid paying more bills related to the property.
An investment costs you every month in property taxes, payments to insurance companies, and other maintenance expenditures. You may also be a borrower responsible for mortgage payments and utilities, regardless of occupancy. Selling the property frees you from these responsibilities.
3. You can buy low and sell high.
Restoring a distressed property like a foreclosure can have some awesome returns, especially when you don’t overspend during the renovation process. The property’s fair market value ends up being enough to recoup what you spent and give you a considerable profit that helps you advance in your investment career.
4. You let go of a property that doesn’t serve you anymore.
You may think that commercial real estate is right for you. Still, then after further review, you prefer multifamily or residential, or you may want to explore other asset classes like real estate investment trusts (REITs) instead. That’s ok. Your journey as an investor will have many unexpected destinations, and letting go of a property you don’t want to manage is good for your business.
The Cons of Real Estate Disposition
Selling real estate also has some risks and considerations. Buying low and selling high is the ideal scenario, but unavoidable or unexpected situations can lead to investors making decisions that are outside the ideal. However, by keeping close tabs on both long and short-term investments, you can maximize your shot at getting the best deal when you sell.
1. There are always risks that can affect your gains.
Sometimes market conditions degenerate quickly. To cut your losses, you may sell lower than you want, which can lead to financial loss. Unexpected events like a natural disaster, rising crime rates, or other adverse market changes can mean that what was once a promising property can become a significant financial risk the longer you hold it. Nevertheless, the faster you let go of known risks, the better off you’ll be in the long run.
2. Under certain circumstances, you can owe capital gains taxes.
If you don’t exchange a like-for-like property, you can’t do a 1031 exchange. To avoid paying a lot on income taxes, investors must prepare the amount they’ll owe for tax time after cashing out. Prepare your taxes with a tax professional to ensure you don’t underpay on capital gains during the year.
3. In open market deals, some deals can fall through when a buyer requires financing.
If you test the open market to get top dollar, you can encounter buyers that need a lender. Higher interest rates make it harder for buyers to qualify, which can lead to deals falling through if the buyer happens to make a typical mortgage mistake.
- Tip: To avoid the stressors of open market sales, sell to another investor who can give you a no-nonsense all-cash offer. Buyouts are also great!
4. It isn’t easy to sell on the open market with residents in your rental.
Occupancy can make selling an investment on the open market tricky. If you’re renting out a family home, it can be difficult or impossible to arrange showing times. There may also be times when the tenant is unwilling to cooperate with home staging and cleaning before each showing. This may be one of the most challenging aspects of selling a rental investment.
However, at Marketplace Homes, we are experienced in selling occupied rentals by selling the property to another investor who assumes responsibility of the lease. Not something you can find just anywhere!
Finding the Best Real Estate Disposition Company
Selling a property or multiple properties under the right conditions is a win-win for investors. Working with a realtor who has connections with other investors is an excellent strategy for gaining quick access to timely buyouts. They can also advise you on what type of property would suit your investment preferences.
Marketplace Homes is a real estate brokerage that is experienced with real estate disposition. If you need to discuss exit strategies, property valuation, liabilities, and other topics related to investing, contact us today!
