Locally Known. Nationally Recognized. Globally Respected.

Real Estate with No Regrets

Dated: June 7 2024

Views: 55

Years ago, I was an investor in a residential property with several people. We received an offer ‘too good to pass up’ for one of our properties and decided to sell to purchase another property. The transaction went smoothly with no issues to speak of, until the following April when we all had to file taxes and discovered how important it is to keep our tax advisors informed, not after a transaction, but prior to the transaction. We were all young and didn’t understand the value of professional advisors.

Knowing ahead of time would have allowed our accountant to advise us what the tax bill was going to be for each of us the following April. We would have been able to prepare financially. To this day we all regret selling that house in a rush without being prepared for what would come next. We also rushed into the sale without considering the option of keeping it long term or possibly investigating a 1031 Exchange, which would have allowed us to purchase another property and defer the tax bill.

Lessons Learned

Selling property is a big transaction and it can have big consequences, positive and negative. Talk to your professional advisors to understand the total situation, including taxes, values, profit, and financing. If you are an investor, the chances are that the timing of the sale could be somewhat flexible. As capital gains taxes are calculated in part based on income, then maybe the sale can be timed when income is lower.

An accountant will advise/calculate the tax implications of a sell. Primary residences are vastly different than those for an investment property. Married couples are not taxed on $500,000 of the profit from their family home, singles receive a $250,000 exemption when they sell, and renovations can be deducted from the profit to lower tax obligations even further. Investors do not receive these deductions and need to do even more planning to avoid or reduce tax obligations.

Another professional to get in your corner prior to selling is a trusted lender who can help navigate what it might look like financially to keep the current property and leverage it to purchase another one. Possibly there isn’t a real need to sell and you could use the equity gained (if there’s enough) to purchase another property while generating passive income with the other one.

Finally, before selling, contact a Realtor who can provide information about the current market to determine the value of your property. From there you will know how much value the property has gained since the purchase and even look 5 years down the road to calculate how much home values are likely to rise in that zip code given what has happened in the previous 5, 10, or 15 years. The Realtor can also produce scenarios for net sheets that will reveal how much money you will walk away with after the transaction.

In addition, how does the current house compare to home values in the neighborhood where you are considering another purchase? How about growth rates in that community?  

After the feedback from professionals, with a better understanding of tax implications, timing, financing, and profit, you can make an informed decision. At that point maybe it still makes sense to sell, but maybe not. 

Blog author image

Patrick Pruett

I have a pretty unique background compared to most agents, which is one of the main reasons I’ve been able to help so many clients. One thing a lot of people don’t know is that I once had ....

Latest Blog Posts

Real Estate with No Regrets

Years ago, I was an investor in a residential property with several people. We received an offer ‘too good to pass up’ for one of our properties and decided to sell to purchase another

Read More

Don’t Pay Taxes! Strategies to Eliminate, Reduce, or Defer Capital Gains Tax on Property

My friend called the other day and wanted to know if there are any real estate investment strategies that can help her avoid paying capital gains taxes on a property she is selling.  Property

Read More

Realtor Representation… How Does It Work?

My father (a.k.a. Pops) began selling Real Estate in 1966, a time that he says was much simpler and straightforward for real estate transactions. He would receive a call from someone who wanted to

Read More

Realtor Representation… How Does It All Work?

My father (a.k.a. Pops) began selling Real Estate in 1966, a time that he says was much simpler and straightforward for real estate transactions. He would receive a call from someone who wanted to

Read More