Why owners sell investment property
There are a few common reasons. Equity has built up and is earning very little compared with what it could earn elsewhere. Insurance, taxes and maintenance keep going up while rents level off. Management has become a second job. A loan is coming due at a much higher rate. Or the owner wants to trade into a larger property, a different market or something more passive.
Knowing your main reason helps you choose the route, because the best price, the quickest sale and the least hassle rarely come from the same sale.
Ways to sell an investment property
Each route fits a different property and a different goal.
- List with an agent or broker: the widest exposure, and often the best price for a clean, well-occupied property.
- Sell directly to an investor: less upside, but more speed and certainty, especially with repairs, vacancy or difficult tenants.
- Sell to a tenant or neighbor who already knows the property.
- Offer seller financing: the buyer pays over time, which can widen the buyer pool and spread your tax.
- Do a 1031 exchange: sell and buy another investment property while deferring the tax.
- Don’t sell yet: sometimes refinancing or hiring a property manager is the better answer.
Taxes when you sell an investment property
How you are taxed often decides the best structure, so run the numbers with your CPA before you accept an offer. Federal long-term capital gains on property held more than a year are taxed at 0, 15 or 20 percent depending on income, and higher earners may owe the 3.8 percent net investment income tax on top.
Depreciation you took, or were allowed to take, is generally recaptured and taxed federally at up to 25 percent. State income tax may also apply. The home sale exclusion for a primary residence does not cover a property you only rented out.
Two ways to defer or spread the tax
In a 1031 exchange, gain is deferred when you reinvest in like-kind real property through a qualified intermediary. You have 45 days from closing to identify replacement property and 180 days to close on it.
In an installment sale, you finance part of the price for the buyer, and the gain is spread over the years you receive payments. For owners with a large gain who don’t want to buy another property, this can be the more flexible option.
Selling with tenants in place
Most investment properties sell with tenants in place, and leases generally transfer to the new owner. Have a current rent roll, copies of leases, deposit records and a plan for giving notice before any showings. A buyer who plans to keep the tenants makes this much simpler.
How we can help
If your investment property is an apartment building with five or more units, Skyline Capital Investments may buy it directly and as-is, with seller-carry terms or a delayed closing for your 1031 exchange when that helps. If it has one to four units, send it through the same form and we will connect you with a partner who buys smaller rentals.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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