If you are new to investing in income property, you may have made a choice in advance of the type of investment property that you wish to own. There are many good types of investment properties: apartments, office buildings, shopping centers, high rise parking garages in downtown areas, warehouses, resort rentals and many others.
Each of these takes a different type of management. Any and all should be under professional management during your ownership. Good management will ensure a profit for you when the investment is sold.
Even before buying the commercial property, you should consider who might be willing to buy it when you want to sell. The specific buyer doesn’t need to be identified, but the type of purchaser should be. Will it be an individual, a syndication, an institution, or a pension fund?
Think about it! If you cannot think of potential buyers now, why is the property being purchased?
By identifying the type of potential future buyer, an investor in a property can better concentrate on what features such a buyer will most likely want. Then the investor is able to operate the property with the management company in such a way as to enhance the attractive features, thereby maximizing the property’s value to the most likely type of buyer. Here are a few examples of resale factors for particular properties.
- Apartment buildings are usually purchased by pension funds and insurance companies only when they are Grade A properties. Syndicators look for Grade B or higher properties. Wealthy individuals are the most likely prospects for apartment buildings that need to be upgraded and modernized.
- Office buildings are typically purchased by users (a bank, an insurance company, or a corporation that intends to occupy all or a major part of the building for its own operations). Foreign investors increasingly seek fully tenanted, income-producing office buildings for long-term investment.
- Resort properties (time-share units, beachfront condominiums, and campgrounds) generally have a weak resale market. Sale by auction is a distinct possibility and that often results in bottom-dollar prices.
Other Resale Considerations
In addition to identifying potential purchasers, an investor must determine carefully the appropriate time to sell, the economic outlook, potential tax considerations of a sale of investment property, and other uses for the money that a sale would bring. And an investor-owner should make every effort before offering the property for sale to ensure that the financial and physical condition of the property justifies the maximum possible price. In a shopping center, for example, the rental income stream, cash flow, and occupancy level should each be at the highest possible level. When they are, a greater number of potential buyers will emerge.
Like-kind exchanges are often a tax-wise alternative to the resale of investment property. Savvy investors keep alert to exchange possibilities as part of their focus on the resalability of a property.