Selling business real estate can be just as challenging as buying it. Naturally, all owners want to place their property on the market at the right time to get the highest price. As most experienced commercial realtors know, there is more to the decision of when to sell than just waiting for the right market.
Another important factor in being successful with business real estate is knowing when to sell based a property’s value and its ability to produce income. Understanding that commercial owners invest in these holdings to make money, consider the following key times when selling might be the most lucrative option.
There are two periods in the lifetime of any property when earning potential suggests it might be a good time to begin a marketing campaign. The first point in time is when a property has lost its earning potential for whatever reason. When holdings can no longer make money, the investor has two basic choices: invest more money in the building with improvements or sell it. This may even mean taking a loss. Yet selling commercial real estate that is non-productive is a more sound financial decision than continuing to hold onto it at a loss.
The other time when earning potential can be used to determine the right time to sell is when the property is earning the maximum that it can potentially earn. Some may view this as the best time to own real estate, and it may very well be. Still, commercial realtors also know this is the best time to sell at the highest price possible. Income-producing properties with high earnings typically can be sold for more.
Even when a property is not producing its maximum income, many owners decide to hold onto it to continue receiving its tax depreciation. Commercial realtors understand that one of the motivators in doing this is to use such depreciation as a tax advantage to apply to the income generated by multiple properties. Yet when depreciation is used, the benefit gained is minimal, if any. An owner should consider how much a building is actually profiting their portfolio and sell if it is not.
Leveraging and ROI
Another indication that selling commercial real estate might be a good financial decision is when a property is underleveraged. It is well understood that overleveraging can be financially risky, but many may not realize that underleveraging can be costly in its own way. The higher the amount of equity in the piece of real estate, the lower the ROI based on generated income. In other words, all the money in equity could be more useful leveraging other properties that collectively bring in a higher ROI.
Changes in Investment Goals
Financial investment goals are an important part of making sound investment decisions. When these goals change, either because of an alteration in the local commercial real estate market, a switch of interest or lifestyle, or for some other reason, investors need to consider whether holding onto their real estate is worth it. When investment goals change, typically the means of reaching those goals change as well. Any type of investment that no longer accomplishes these goals can be sold and replaced with properties that do.
For investors buying and selling commercial real estate, there is a lot more to keep in mind than just when the market is up. Sometimes, selling business property should be based on other factors that affect an investor’s financial goals. Experienced commercial realtors can help entrepreneurs consider these various situations and determine which of their properties to keep and which they should consider selling!