Hailey, ID · Member since 2015 · 30 posts · 5 votes
OK this is a question that I have had in the back of my mind for a while, why would anyone sell a property that is cash flowing?
I realize that some people might want to sell their property to invest in a better property that gives them more of a return. Also I know that there are people that are just bad property managers/owners who might be looking to sell to get rid of a head ache. I can imagine some owners are forced to sale because of financial problems. Other than the reasons I just mentioned why sell a property that is clearly cash flowing? I can't help but to think that most sellers are ditching their property because they have some underlying issue with it; an issue that will be very costly in the future. Obviously this makes me nervous as an investor. Out of curiosity, for those of you who have purchased/sold a property, what caused the seller or you to part with it?
My strategy has always been to improve a property and maximize net income to create equity. Once you do that you aren't going to make much money on cash flow. Most wealth created through real estate isn't cash flow its equity growth. You have two choices, wait for the market to do it for you or create it on your own. I always choose the later. The properties I sell have great cash flow even at the inflated prices I sell them at. For buyers just looking to sit on a turnkey property, its perfect, for me its like a squeezed lemon with no juice left to give. I hope this helps, KEEP ROCKIN BP-ERS!
I dont know any US jurisdictions but there are places where the cap gains tax drops dramatically or to nothing after x years - so, you would want to sell and invest in the next one to get this advantage again.
Property taxes are a source for any municipality to use as its tax base, sources from while to fund all municipal expenses like street clean up, street lighting, traffic lighting, police and fire fighting service etc. etc.
Each Municipality has its own way of determining property taxes some are more fair than others and some are outdated. Many factors can contribute to a property having a disproportionate tax . Let us say the real estate market is hot and allot of properties get sold at a high price. Perhaps a municipality decides it will reassess all propertied and adjust their tax but then a few years later the values of propertied drops very significantly. Well that case may be the municipality has not gotten around to readjust the property taxes of properties in according to their present day property values.
There can and is the case where a property's tax was determined during a time when the property was valued at lets say $4,000.00 but the current market value of the property at sale is $679,000.00. Well I imagine anyone looking to buy the property at $679,000.00 would be very happy to pay a very low property tax based on an assessed value of $4,000.00. You would not run to the tax assessor's office asking to have your property tax adjusted :)
In present day allot of buyers will petition to have their property tax reassessed if they feel the property tax is not proportionate. Many if not all municipalities have a formulate to assessing properties but often times miscalculations can be made but remain unchanged in the tax books.
If you really care to I am sure you can research how any municipality or tax assessor's office goes about assessing any particular property for its tax.
We just sold a well-performing fourplex bought in the depths of the crash because
A) we had our first child
B) we moved
C) the fourplex is now 20 minutes farther from where we live and any trip there is at least an hour round trip
D) I'd rather spend that time with the baby
E) the selling price was two years worth of cash flow higher than we expected it to be. We were planning to sell in about two years, so when we could capture that profit with a sale instead of a hold, we sold it.
I met the buyer to introduce him to the tenants and I think he is going to do even better than we did. Wins all around. I was tickled when he showed up with his wife and one year old daughter to meet the tenants.
Different strokes for different folks. Not every situation is a disaster waiting to be salvaged (much as we investors love to pounce on those!)
Another reason for selling good property (and this is a position I am in) is to settle an estate. I have property that is jointly held with my siblings. We can keep the property and continue to rent it out (and split the proceeds three ways). However, by selling the property, and leveraging my portion of the proceeds, I anticipate being able to get a better return on investment.
@Gilbert Dominguez I appreciate the quick response and the detailed explanation. Its good to know that if you got stuck with a property with really high taxes you could petition to have the taxes reassessed and maybe changed. Thanks again!
@Gilbert Dominguez I appreciate the quick response and the detailed explanation. Its good to know that if you got stuck with a property with really high taxes you could petition to have the taxes reassessed and maybe changed. Thanks again!
I have a property under contract set to close next month for way less than the tax appraised value. My plan is to go directly from closing to the county tax office to start my protest. They might not do anything for me then, but they will hear from me numerous times until I get it dropped to market value. There is a formal protest process, that involves taking the protest before a board if I don't get satisfaction from the county office. They might argue that I got it under market, but that will be difficult to prove as it has been listed on the MLS for almost a year.
I sold a multi-unit that was built in 1890 and did a 1031 to properties built in 1994 & 1996; so I traded up a century.
I sold multiple properties that were in a town that was about an hour away and had lower rents, I 1031ed for higher priced properties, with higher rents and closer to other property that I owned.
I sold properties that were under performing and acquired properties that were deemed better performing.