Like investors do in the traditional stock market, real estate investors will sell properties in their portfolio. They may be looking to switch up the kind of properties they invest in, cash out, or are looking to pour funds into a different facet of their portfolio. Whatever the reason, there’s a couple of different ways to go about selling an investment property.
Selling an investment property on the open market
The “open market” is defined as the listing and selling of properties that are made available to the general public. You’ll have a bigger pool of potential buyers by way of selling an investment property on the open market. Future homeowners will be competing with each other, and investors may be looking on the open market too.
What are the benefits of selling on the open market?
There is the opportunity to have multiple offers to choose from when you list on the open market. You’ll have the chance to pick the best one, and some may be over your asking price. The current market has been geared towards sellers due to the high volume of buyers and low inventory.
Real estate agents have access to a Multiple Listing Service (MLS). They will tackle the marketing of your investment property, which means you can leave the details to them. The accuracy of an MLS platform is on point. Information and photos uploaded onto the MLS are mirrored onto other platforms like Zillow, Realtor, and Trulia. Usually, an MLS is only accessible by a certified real estate agent.
Some things to consider when selling on the open market
Homebuyers may ask for things after an inspection that an investor might not care about. A homebuyer may care more about cracks in the sidewalk or professionally removing lead-based paint.
Your property might not be vacant when you’re ready to sell. You’ll have to give your tenants a 24 hour notice before showing the home to potential buyers. Or, you could wait until the end of their lease before putting it on the open market. The closing of your investment property can’t happen until the tenants have vacated the property. Marketing the home too early could hurt your chances of finding the best deal.
Consider hiring a staging company to furnish the home so it isn’t sitting empty during tours or open houses. Your real estate agent might have suggestions for local staging companies.
Sellers typically pay 5-6% of the sale price in commission fees. The fee covers the agents on both sides of the deal. You’ll want to take a closer look at the fee structure for your agent and for the buyers’ agent too.
Selling an investment property directly to another investor (offline)
Another plausible way to sell an investment property is to look for another investor. If you’re a DIYer, talk to a real estate agent who specializes in investment properties. Property management companies who focus on building wealth through real estate will have a someone on their team who has access to a network of like-minded investors.
What are the benefits of selling offline?
Work with a Real Estate Investment Advisor (REIA) that you can trust to find the best deal for you. If your REIA is looking within their network of investors, they will probably represent both sides of the deal.
There are advantages to your REIA having dual representation. “Usually, there’s a lower commission percentage for the sellers to pay,” Says Seth Evans, REIA for RPM Iowa. “Our fee structure is simple. The buyer will pay a flat rate fee and the seller will pay 3% instead of your usual 6%.”
“We want both sides of the transaction to come out on top,” Says Evans. “We’ll provide an ‘estimate of proceeds’ for both selling on the open market and selling to another investor within our network. The seller will have the information necessary to make an executive decision.” An estimate of proceeds will show you how much you should expect to make from the sale after closing costs are integrated.
“The numbers turn out to be pretty close in comparison,” Says Evans. “It boils down to the comfortability of the investor.”
An estimate of proceeds for selling on the open market looks a little something like this:
Some things to consider when selling offline
Not every investor looking to sell will feel comfortable with dual representation. Selling on the open market may be the appropriate route if you’re looking for another opinion or a different representative. Talk to your trusted REIA and see if they have any suggestions on local real estate agents who could represent you. Your comfortability and trust should be of the highest priority for your REIA and property management team.
Looking to sell?
Start the conversation with your REIA. With how the current market is going, it may be the best time to sell your investment property. If you don’t have a REIA or a real estate agent in your contacts, reach out to RPM Iowa. Make the right moves and build wealth through real estate investing.
Are you looking to add to your portfolio? Check out this article that answers the question: How many properties can you purchase without a commercial loan?