7 Steps to Take Before Selling Off Your Commercial Properties
As a commercial property investor, you may be thinking about cashing in and selling off some (or maybe all) of your commercial properties. And you’re not the only one.
Financial stress from COVID-19 has forced many commercial property owners to consider liquidating their assets to free up cash.
But the last thing you want to do is quickly jump in and sell off your property without taking every single aspect into consideration.
Are your emotions clouding your decision making? Do you fully understand your property’s worth or associated costs?
Here’s seven steps to consider before you make moves to sell off your commercial property.
Take stock of your situation
Selling any investments shouldn’t be taken lightly, especially during these unprecedented times. Acknowledge whether your emotions and stress is driving you to this decision, or if it’s actually the best financial move to make at this point in time.
Have you reviewed your goals? Do you have all the facts and information on where you’re at with your current situation? Researching the current market and projections may reveal you are selling at a bad time, perhaps breakthrough is around the corner or maybe there are other ways to free up finance without taking the drastic step of selling.
Seeking advice as soon as possible from a property expert will ensure you’re given all the facts and information you need to make an educated decision.
Consider tax implications
Capital Gains Tax (CGT) and other tax obligations are a major cost consideration when selling commercial properties.
If you can prove your investment has a high cost base, this will lessen the net capital gain and consequential tax you need to pay. You can achieve this by keeping a record of all your receipts and records of all deductible property expenses.
We highly recommend you seek advice from an independent Accountant on how you can mitigate any CGT tax.
Understand your property value
Gather data on the value of your properties as well as the latest market figures. By understanding your property’s worth and market trends, you’ll have a reliable guideline on what to expect and a minimum selling price to stand by during any negotiations.
Count the costs
Selling comes at a price – there are various fees you’ll incur through the process which should be included in your modelling. These include legal and advertising costs, commission to agents, advisor fees, potentially bank costs and more.
How dire is your financial situation? Weigh up how quickly you need the cash against how long the sales process will take if you sell your assets. You may find the two don’t align with your short-term financial goals.
Consider existing tenant lease agreements and relationships
If you do decide to liquidate, you’ll need to review your existing tenant lease agreements and make any relevant changes to ensure there aren’t roadblocks for potential buyers.
Buyers will want to guarantee your property’s cash flow is stable and continuous, so it’s important your tenants’ remaining lease terms are locked in if possible. If the tenants lease term is approaching expiry, you have the option of entering into negotiations with your tenants to extend the lease, or at least establish their willingness to stay in the property.
You will also need to ensure you have the right to place the asset on the open market for sale under the terms of the lease and advertise accordingly. Some leases stipulate things such as notice periods, site inspections, and what promotional signage can or can not be put in place. You should also maintain open communication with any investment partners you have and ensure you’re on the same page.
Get the right people involved
Selling commercial property or multiple properties is definitely not something you should tackle alone. Surrounding yourself with an expert team from the beginning will ensure you maximise your gains across every step of the way.
Your team should at least include a property adviser / advocate, accountant, lawyer and agent.
An accountant will particularly help you mitigate any CGT and understand other tax implications, while a lawyer will make sure you have all the correct contracts in place and set up correctly.
But most importantly, you should be seeking advice from property experts who can review your portfolio and recommend the right strategy for you.
If you're considering selling off your commercial property, make sure you talk to an expert first.
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Managing Director, Broadway Property
Director, Broadway Property