5 Important Things to do When Switching to a New Investment Property

When you're ready to sell an old property and buy a new one, there are many things that need to be considered beforehand; therefore, the process can certainly become overwhelming for just about anybody. Often, investors will delegate most of the difficulties to the professionals and take the hands-off approach.

While this can certainly yield good results, it can also be very costly, and you could be still getting a mediocre outcome when compared to what you could have achieved by taking the initiative to be more involved. That being said, here are at least five things you can do to take matters into your own hands and ensure you're covering all your bases when switching to a new investment property.

1. Opt for a 1031 Exchange

If you're purchasing a replacement property around the same time you'll be selling your old property, then it would be best to take advantage of the 1031 exchange tax deferral program, which keeps you from having to pay capital gains taxes on the sale of the old property.

While that might not seem like a huge deal, it can actually lead to a significant saving when you're talking about the sale of a property that costs half a million or more. In fact, it can add up to the cost of a brand new vehicle or more. Why would you want to waste that money on taxes if you could easily keep it instead? A 1031 exchange is a simple process that simply adds a few pieces of paperwork and steps to the existing closing and buying procedures.

2. Select the Right Replacement Property

To make it happen, all you have to do is find a 1031 exchange property that is worth about the same amount you paid for your current investment property. The mortgage terms will also have to be similar for the property to qualify.

Aside from that, there a number of rules that need to be followed and paperwork that needs to be done for the process to be legitimate. For that reason, it's best to have the assistance of a professional to make sure you don't get into trouble or face an audit in the future.

Of course, you'll want to take your time and exercise maximum discretion on this step because you don't want to wind up with a property that you'll regret buying later on, especially if you essentially traded a better property to get into it.

3. Create a Powerful Listing for the Property You're Selling

Selling your current property for the highest possible price should be your first concern. Thus, you should put all your resources into creating an ad and listing that will attract the highest paying buyers. Skipping out on this step will only deplete your properties true potential. By shortcutting on the ad, you will not attract the buyers who could offer you a larger sum of money; therefore, lessening your building’s potential. If you do not have the time to create the ad, hire a professional. The expense will be worth it in the end.

The key to a good listing is to have a huge amount of stunning photographs of every appealing feature of the property with detailed descriptions for each. People can't see the strong points of your property in person when they're viewing your ad, so you need to give them the closest thing. Real estate marketing studies have repeatedly shown that pictures are an incredibly important aspect of selling a house.

4. Choose the Right Agents to Get the Job Done

The agent you choose will have a direct cost of closing the sale because they'll determine the commission percentage that they require. While it's not always best to choose the agent with the lowest commission charge, it's a good idea to at least look for a reasonably priced agent with a strong reputation.

In particular, you should be looking for agents that specialize in the 1031 exchange process and can provide you with a long list of prospective properties that are eligible for the exchange. Not all agents are highly familiar with this process, so it helps to choose someone who is. No matter the case, never jump into a sale based solely on the recommendation of an agent – always do you own due diligence before committing to a closing.

5. Have Landscaping, Cleaning, Maintenance, and Move-in Procedures Planned Beforehand

Whenever you sell or buy a property, there are going to be some finishing touches you'll have to perform to heighten your property’s potential, or adjust the new place to your liking upon moving in. All of these processes can become hectic if you don't have them planned out and delegated beforehand, so make sure you cover this aspect as a final step.

At the very least, you'll want the landscaping and aesthetics of the old property to be top notch to attract the highest sales price possible. Even if it seems expensive and counter-intuitive, it can pay off when those nominal investments add up to a much higher offer from a better buyer.

Be Sure You're Making the Right Move

Although we'd all like to hope that the outcome of our decision will be at least close to what we have envisioned, in some cases it can go the other way completely. As you probably know, there are no guarantees in real estate, except for the guarantee that you are the only person who is ultimately responsible for the results of your investment decisions.

If your replacement property winds up being more of a hassle and less lucrative than the property you sold, you'll be in a horrible state of regret until you're able to rectify the situation. Thus, it's best to exercise patience and not be too overzealous when buying a new property. This isn't something you want to rush into because the hastiness could come back to haunt you later on.