When To Sell

 As managing partner of your syndicate you must give consideration as to when it is time to sell the property. The easy answer is it is time to sell when the goals of the syndicate have been met. As you probably imagined things are never quite black and white. Best answer is, it is time to sell when it is in the best financial interest of the investors.

Once you decide to sell You will have some investors who wanted the income they where getting and they will be less then thrilled with a closing out of the deal. You can always approach those investors who wanted to stay invested with another profitable deal that they can invest in with their now larger bank accounts.

Some of the sale considerations are:

• You have taken the property to it's highest and best use, producing the maximum expected income.

• You have maximized the rental income and thus improved the value and it is a sellers market.

• You have held the property long enough to use up the depreciation and increased the equity.

• You have reached the re-finance point on the mortgage and interest rates are up.

• The area is declining.

• You have another better investment opportunity

You have taken the property to it's highest and best use

You have a large gain in equity from over all improvements and a sale would result in a handsome gain for your investors. Your improvements and or management has enabled you to get market or slightly higher rents and thus you should be able to get the maximum sale price. In a sellers market where there is more buyers then properties available for sale, you can get top dollar for a well producing property.

You have maximized the rental income

The value of income producing property is in the net rental income the property produces. Determining when the rental market is at it's highest can be difficult. You can get some idea as to when the demand for apartments is lagging by watching new home sales forecast. A declining forecast of new home sales means a lessening in demand for apartments. Construction of new apartments or new office buildings can mean a weakling of demand from over supply. Job supply is another indicator.

Inflation is an indicator of increasing rents. If inflation is expected rental properties are a good hedge against inflation. Rents increase at about the rate of inflation and the value of the property at a like rate. New buyers who think inflation is likely will want real estate as an investment.

You have used up the depreciation

Watch the amount of the income that goes to investors that is taxable. Once the depreciation is used up ( a rare occurrence) and the equity build up from mortgage reduction increases as the note ages and less of the payment is interest it maybe time to sell.

You have reached the re-finance point

Most commercial loans today have balloon payments due in five years. At a minimum of six months before that date look into refinancing and the associated cost as well as the current interest rates. This is an ideal time to reevaluate the syndicate and it's goals.

The area is declining.

Each market area has ups and downs. If the area your property is in is in decline so will the rents in time. If the area is improving and new employers are moving in you can take advantage of the situation. Awareness is the ever vigilant syndicators watch word.

You have another better investment opportunity

You know your investors and their goals. If you have another opportunity and you want to cash your investors out in the hopes of getting them in a new better investment, selling is a possibility. A tax free exchange is another possibility if all the investors can agree.