Apartment building selling. It’s part of the investment journey but it’s also something that’s not largely considered in the beginning. At some point, however, commercial property investors need to think about their exit strategy. And, how that will play out in conjunction with the next deal. Regardless of the size or location, there comes a time when it’s lucrative to sell an apartment building. So, you should know a few basics about the process and what to expect.
When to Sell an Apartment Building
Let’s begin with when rather than how. Timing is critical in any real estate transaction, regardless of type. For commercial investing, like with an apartment complex, because of its sheer size and price tag, timing is key. Now, if it is truly profitable, why would you sell in the first place? Well, there are a few good reasons. Selling could lead to the next deal for a new challenge.
Flipping an apartment building is a different animal than flipping a single-family home. The main difference stems from the way these buildings are valued. Most single-family homes are valued with the comparable (or “comp”) method. This method takes similar homes that have recently sold and uses them to establish a value based on their similarity to the subject property. In other words, if the house next door sold for $100 and is exactly the same as yours, then your house should also theoretically sell for $100. Apartment complexes on the other hand, are quite different because their sale price is usually based on a “cap rate” basis. —RE Tipster.com
Then, there’s the matter of going in a totally different direction. It might well be time to try something else. Of course, if the apartment complex isn’t bringing a solid ROI, then it’s worth exploring unloading it and moving on. The point is, you need a detailed and honest assessment of the situation as it stands and where it’s likely to go in the short and long-term.
Apartment Building Selling Basics Commercial Property Investors should Know
If you’re exploring commercial real estate investment opportunities, you might well be wondering about the basics. So, if this is the case, you should take a quick look at the biggest commercial real estate investment benefits.
- Refinance. One way to transition out and to eventually sell is by refinancing. Now, lenders will probably require 1.25 percent debt coverage ratio. Which means the building’s or complex’s net operating income must be 1.25 times the amount of the loan. You can opt to raise rents or increase revenue and then go for a refinance in a couple to a few years.
- Sell outright. Of course, you can sell outright. But, you should do this when it leaves you in a better position. Now, this doesn’t necessarily mean you’ll walk away with a big ROI. There are situations where it’s best to cut losses and move on.
- Use an in-kind exchange. Another exit strategy is going from one investment to another. You can explore going through a 1031 exchange, which basically allows you to swap one property for another.
If you’d like to learn more about commercial real estate investment benefits and more about the selling process, please contact me.