should I sell my multi use building?

Question

Hi all,

Just found this great site. Wish i had found it years ago.  I have a MU 5 unit building that is receiving an unsolicited interest. So thinking i might sell if it's "an offer i can't refuse"   i am going to meet them In next week or so.

Some facts;

Owned for13+ years we are retired in our 60's

bought for $323000

Positive CF almost from day one, (now about $3,000+ a month) existing mortgage balance only $68,000 ($900 a month).  3 Retail tenants pay nnn, studio rental about $695. We live in the 2 bedroom unit part-time.  I know value is a 1 - low 7 figures. Very Minimal maintenance concerns, but getting tired of Seattle BS & traffic.

So then what do i do; tax wise, how best determine my value, should i carry note for monthly income?? Or just keep it?

Many questions raised since this inquiry.

Any ideas, positive comments greatly appreciated.

JQ

Dave Foster · Answer

With your mortgage position as advantageous as is it  you would be very well served to look at a 1031 exchange into several properties.   You're energy level and personal desires can determine what and where you invest - geographically and passive vs actively managed.  But one solid strategy would be to put all the mortgage onto one of the properties and then own the rest for cash.  That way if there is a need to sell eventually you can get rid of all indebtedness in one sale.

You may also consider purchasing as one or more of your replacements a single family residence that you use as a rental for a period of time but leave your option open to convert it to your primary residence and eliminate some more of that significant tax bill over time.

Clay Smith · Answer

if you had it to do all over again, would YOU buy this property for this much money? If your answer is no, sell it.

Consult your CPA on the taxes.

Steve K. · Answer

@Joseph Quarto  Assuming MU means mixed use, I think the best way to value your property is through income approach.

Research your market rent through website Hotpads (or similar websites) by using property address, and see what other similar units in the area are renting for, and then adjust your rent accordingly.  Assuming the rents can be increased after research, you can sign new lease with tenants with higher rents if leases are up for renewal.  After 6 months of collecting increased rent, your property can be marketed at higher price.  Because you now have proof your property can generate higher cash flow, ergo you can sell for more.   Income investors want to see actual paper trails providing the proof, not just owner's opinion on what the income property can generate.  Buyers will be looking at NOI, GNM, GRM, Cap Rates, etc.  Try to time the sales when all the units are rented, because to some potential buyers, empty units (not collecting rent) shouldn't count toward gross rent income.

Just my 2 cents.

Howard Abell · Answer

From the information you supplied it seems that the valuation you claim and the NOI I can estimate you are getting about a 5% return on your investment. Most of that cash on cash. If that is an adequate percentage return than keep it. However, selling and taking the equity available and putting it into several new properties should increase not only your percentage return but the absolute dollar amount you are receiving. Just a thought.

Bob E. · Answer

Check with your accountant.  I believe selling on terms allows you to spread out the tax affect, but your accountant could tell you.

If you do a csh sale you can do a 1031 into a new property in an area you would rather manage, could do nun commercial in another state if you want.

Or you could buy some performing notes that would cashflow without the expenses of ownership.

Steve Olafson · Answer

You are in a great position where you have options.

The value should be higher if you give terms.  A seller carryback can give the buyer more options.  When you do carry a note, you should get more money from the sale.

I like what @Clay Smith says.  So very straight forward.  This would make sense if you do not plan to purchase another property.  The market is tough to buy in.

I do believe that this is a good time to sell.  It would be nice if there were some type of crystal ball that we could look into.  But, buyers are very aggressive these days.

I did recently purchase a retail center though.  I also plan on keeping it for cashflow as part of my retirement.  It is also NNN but without the apartments so it is fairly hands-off.

Can you hire a manager to take care of this for you?

You will likely have a lot of depreciation to recapture.  Check with your accountant but that could be a big tax hit.  Do you have children?  Are you planning on leaving anything to them?  I do believe that they would get a step-up in basis and would not have to recapture the depreciation once you have passed on.

The nice thing about selling now is the capital gains rate.  I doubt that it will ever be lower than it is now.

The choices we need to make...  :)

should I sell my multi use building?

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