Sell Your Rental Property for More
By Steve Gillman - 2006
When you sell income property, it isn't like selling a house.
Paint a house, and you'll get a little more because it looks
nice. Rental property is different, because the buyers are investors,
who look at income more than new paint. Raise net income, and
you increase value.
Assume investors in your area expect a capitalization rate
of .08. That means that they expect a net return (before loan
payments and taxes) of 8% on the purchase price. If your three-unit
rental house generates $12,000 net income annually, they'll value
it around $150,000 ($12,000 divided by .08). If you make it generate
$16,000, you'll make it worth $200,000.
Get More Income from Your Income Property
Raising rents is the obvious way to boost income, if you can
justify it. What are similar units renting for? If you're $60
below the going rate, you won't lose your renters by raising
the rent. $60 more for three apartments means $2160 more net
income annually. At a .08 cap rate, you just created $27,000
There are other ways to raise rents. Your tenants might agree
to $30 more per month if you have a carport built. That's $1080
more net annual income, meaning roughly $13,500 more value added
to your property. ($30 x 3 x 12 months = $1080 divided by a .08
cap rate = $13,500) Build a carport for $4,000, and that's a
good return on investment right? What else might they want?
Find other ways to get more income. Rent storage sheds to
tenants or put in coin-operated washers and dryers If you have
a larger income property, you could install pop machines.
Reduce Rental Property Expenses
You could add insulation to reduce your heating costs. If
you're paying $70/month for lawn care, will one of the tenants
do it for $50? Can you find cheaper insurance? Find ways to reduce
expenses. Spend $4,000 on a furnace that saves $800/year on heating
costs, and you can get a $10,000 higher sales price.
These things aren't an exact science, and of course appearance
and other factors matter. Increasing the net income, though,
is the surest way to get more for your income property. Make
the changes at least several months before you try to sell the
property. Also, learn how do the math - it really does help.
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