Selling your commercial real estate property is a decision that should be very carefully thought out. When choosing when to sell your property, you must analyze your tolerance for risk, your timeline, the state of the market and many other aspects. According to Doug Marshall of Marshall Commercial Funding, timing is key when planning to sell your property. He recently published an article on his blog detailing reasons to sell, not sell and other factors that will help you determine the best time to sell your commercial property. Feel free to read an excerpt from his blog below, then click the green button at the bottom of the page to view the full post.
Timing is Everything – When is the Right and Wrong Time to Sell Your Property?
The question all good investors must ask is, “When is the right time to sell my rental properties?” All markets, including commercial real estate, go through cycles. Riding a market when it’s on a strong upswing is truly a euphoric feeling.
Where are we on the Real Estate Market Cycle?
But where will the real estate market go from here? Shown below is a chart that shows the four phases of the real estate market cycle. I believe in 2016 the Pacific Northwest commercial real estate market moved from Phase II – Expansion to the beginning of Phase III – Hypersupply. Why? Because we are seeing for the very first time vacancy rates beginning to rise. Secondly, it’s all about rent growth. It’s still positive but rent increases are substantially less than they were a year ago. This puts us firmly in Phase III where rent growth is still positive but declining.
4 Questions Before You Decide
So is it time to divest of your real estate? Before making that decision, here are four questions to ask yourself:
- What is your time horizon? Are you at a point in life that it may be prudent to invest your money in lower risk investments? Or are you in it for the long haul come “hell or high water?”
- What is your risk tolerance? Can you afford to lose money if the real estate market goes in the tank?
- Do you need the equity in your real estate for other more important pursuits?
- How leveraged is your real estate? Or another way to answer that question, where is your property’s breakeven vacancy rate? If your property’s vacancy rate ballooned to 15% or more, would your property still generate a positive cash flow?
