If you’ve ever read anything about investing in real estate, one of the main things people tend to focus on is either buying the property, or maintaining the property long-term, but what about when it comes to selling your investment property?
If you look at any in-depth real estate investment analysis, sale proceeds (either before or after tax) are always one of the final line items accounted for yet so many investment seminars rarely ever broach the subject.
Although, generally, the longer you hold onto an investment property the more money you will likely make as cash flow is generated month after month, year after year, sometimes those plans can change and all of the sudden, for whatever reason, selling that money making cash-cow simply makes sense in the overall grand scheme of things.
When it comes time to sell your cherished investment, what is the best way to go about it?
There are a few keys things to consider when selling an investment property.
Your tenants have certain fundamental rights to continue living in the home, despite the fact that you may want to sell your investment property and move onto other things.
If your tenants are locked into a fixed-term lease (1-year, for instance) you cannot sell your investment property requesting vacant possession before the end of their lease is up, unless it is otherwise agreed upon or negotiated with those tenants. If you are requesting they leave at the end of their term, at least 60 days written notice must be given to the tenants and a new purchaser must be using the unit either for themselves, an immediate family member, their spouse or one of their spouses immediate family members, or someone who will be providing care to any of the persons previously mentioned.
As the landlord, you must also now give the tenants a payment equal to 1 month’s rent or offer them another rental unit acceptable to them if you are evicting them for the reasons stated above.
You can have a purchaser close on the property before the end of the tenant’s lease is up, however, that new purchaser must assume the tenants until the end of their lease regardless of what the new owner’s intentions are with the property.
Most tenants will understand when it comes time to sell your investment property, and if you’ve been a good landlord up until that point (which, hopefully, you have been!) most often they will want to work with you on a successful sale so they can get back to life as usual or at least find out whether or not they will be able to continue living in the home, if they so choose.
Bottom line, you cannot evict a tenant simply because you want a vacant or staged home ready for a new buyer to move into as soon as possible.
This really depends on whether or not your property is rented to students.
With the vast majority of student leases in Guelph running from May to April, the ideal time to sell a student rental property is in January and February.
Choosing not to sell your student rental in these two months can literally mean tens of thousands of dollars off of your sale price as this is when most parents are looking to purchase a home for their son or daughter to attend the U of G and the demand is typically the greatest during this time of the year for student investment buyers.
If your rental property is a family home (single family, duplex, or otherwise) the market timing of your sale is not as critical as the student rental cycle in Guelph, but other factors such as localized market conditions, interest rates, industry regulations, etc. do still apply so if you’re not sure what could be affecting the timing of a potential family-rental property sale, be sure to ask your trusted investment realtor when the best time to sell would be.
Although in no way am I certified to be handing out personalized tax advice here, I can tell you that Capital Gains Tax is something every investor should look at before selling any investment property they own.
One of the biggest things to watch out for is a significant change in taxable income from one year to the next. For instance, if you are making a nice big 6-figure income right now but plan on changing careers, starting your own business, etc. and know that next years income will be significantly less than this years, selling your investment property next year might make the most sense from a tax-perspective as your marginal tax rate will be much less the following year, which should reduce the overall Capital Gains Tax owing, so showing that sale of real estate in the following tax year may help you keep more of your hard earned equity.
The tax burden you are left with after the disposition of any piece of real estate can significantly impact your overall sale proceeds after tax so, please, talk to your accountant, quite possibly even before you talk to your realtor, before making any decisions to sell an investment property.
Now, I know most investors have it engrained somewhere deep within their minds they must hold onto their cash-flowing property as a residual income stream until the end of their days, but let’s face it – things change.
Maybe you decide to have kids or want to move out of the country? Maybe you meet a new partner and decide to merge both of your portfolios into one property? Maybe you get tired of dealing with tenants, or concerned the markets will drop, or interest rates will go up and leave you in a bad spot?….. Or maybe, just maybe, you find yourself simply wanting to sell your investment property and you can’t even explain why.
Whatever the reasons, just know there are steps you can take to make sure you are maximizing on sale price. Choosing to work with the proper professionals will ensure you net the greatest return possible on your investment and help you keep the most amount of money in your pocket at the end of the day once all taxes have been paid.
Until next time, Happy Investing!