In our last article, we discussed the considerations of selling a property. In this article, we will explore how the expected benefits of selling should outweigh these costs, considering various goals such as downsizing to a new residential property and improving income generation.
The Costs of Selling Property for Profit
When selling a rental property aiming to earn a profit, it is crucial to have a comprehensive understanding of the costs involved. As mentioned in our previous article, these costs include real estate agent fees, closing costs, property taxes, and potential repair expenses, among others. By accurately estimating these costs, you can determine whether the expected profits from the sale will outweigh the expenses incurred during the process.
Downsizing to a New Residential Property
If your goal is to downsize to a new residential property while retaining some profit to improve your financial situation, it is essential to account for not only the costs of selling but also the costs involved in purchasing a new property. These costs may include a down payment, mortgage fees, inspection fees, and moving expenses. By thoroughly analyzing both the costs of selling and purchasing a new property, you can realistically assess your expected profit and make an informed decision on how much you need to downsize to retain the profit you expect.
Also, keep in mind that your quality-of-life matters. It’s possible to downsize to a place and realize later that you didn’t get as much financial benefit from it, and it’s too small for you and doesn’t have the amenities or qualities you really hoped for.
Improving Income Generation Through Property
Another reason you might want to purchase a new property after selling one is to improve your passive income generation. If your primary goal of selling a property is to improve your income-generating property, the choice of the replacement property and the method of doing so are crucial factors.
The ideal replacement property should have the potential for a rental income that meets your goals or long-term appreciation. In addition, also consider the costs of acquiring the new property the same way you’d consider them for a new residential property.
You Have More Options Than You Think
However, purchasing a rental property with the proceeds of your sold property isn’t the only option you have to access passive income through real estate.
There are specific 1031 Exchange strategies, such as a Delaware Statutory Trust (DST), that may help minimize the costs of property management and maximize the potential returns of replacing a sold property. These tools can provide tax advantages, allowing you to defer capital gains taxes, can provide a variety of property types, and offload the work it takes to manage and upkeep property and tenants. We will elaborate on these concepts in our upcoming articles, which will help you make an informed decision when considering how to generate potential income through property ownership.
Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.
There are material risks associated with investing in private placements, DST properties and real estate securities including illiquidity, general market conditions, interest rate risks, financing risks, potentially adverse tax consequences, general economic risks, development risks, and potential loss of the entire investment principal.
Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Advisory Services offered through Asset Strategy Advisors, LLC (ASA), a SEC Registered Investment Advisor. Securities offered through Concorde Investment Services, LLC. (CIS), member FINRA/SIPC. Insurance Services offered through Asset Strategy Financial Group, Inc. (ASFG). ASA, CIS and ASFG are separate companies.
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