There are times when there is a need to make a strategic move regarding your real estate investment holdings. One of such strategic moves is buying and selling of a piece of real estate simultaneously or as near to this as possible. Strategic moves are for those who already own at least one real estate investment property but the information might also prove useful one day to those new in real estate investment.
The primary reason why a person might want to sell their real estate investment property and buy another one is usually due to a change in circumstance. This is a broad reason that can accommodate a lot of scenario. A change in circumstance could be in relation to the purpose of the property that is about to be sold. Take the true case of a very successful businessman who built a mansion of about twenty rooms with several meeting rooms, swimming pools and other amenities.
In his reasoning at that time was the need for a place that could host multiple meetings, personal functions and other family events. Twenty years after the children have moved on, he and his wife are older, and the house has now become a burden. Their decision to downsize to a more manageable home was a core reason why they wanted to sell the house and buy a smaller one.
Another reason could be that the location has now changed and provided you with an opportunity to make money that could be put to better use. This was the case of an investor who suddenly realised that where he was living was rapidly turning into a high-street for banks. The value of his property shot up astronomically while the area changed from its naturally quiet and peaceful environment to a noisy commercial area. He was approached by one of the banks and he made so much from the property sale that he was able to relocate to a more serene location and still keeps a good profit.
Downsizing might also be forced on an investor by the need to access the equity in the property, buy a cheaper one and access the extra capital. It is also possible for an investor to have extra cash and be willing to add all the funds coming in from the sale of a property in order to buy an investment property in a better location or with better prospect of a higher return on his or her investment. Navigating this season requires clarity, focus and discipline. If a person is careless at this stage it could mean losing his or her property and losing money.
It is always better to begin this journey with clarity as to why you want to sell and what you want to buy. If you have a team of professional and experienced advisers this is the time to discuss with them. You must have a clear road map before the money gets into your hand or you can easily be distracted. This is a good time to get your facts right and avoid assumptions. You should have a clear idea of how much your property is worth, where you would like to invest some or all of the money and what is the value of properties in your desired area. These are information that you should also reconfirm just before you make the sale.
It is highly recommended that you start with the sale first. Real estate is notoriously an illiquid asset. It is not easy to convert a real estate asset into cash in the same way that you do with shares and stocks. It usually requires marketing, waiting and negotiating before closing. You cannot specifically state when a property will be bought. It is therefore better that you are certain of the sale before you start negotiating with the seller of another property. If you put the purchase before the sale, unless you have access to other sources of financing you might not be able to close those deals and also leave a long list of disappointed sellers on your track.
Astute real estate investors are decisive and discipline. You should be clear as to what you want to buy before the purchase price gets into your account. As much as possible avoid a situation where you have made the sale but the purchase is lingering for months. The temptation to overspend and be distracted from your original goal can be too great. Let the transactions be as close as possible to each other.
Source: Abiodun Doherty
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