If you are looking to sell a house fast in Wisconsin, it can be an exciting adventure. However, in current market, it can also be a frightening experience when you are unsure if the sale of your investment property will pay off in a troubled real estate market.
In this article, our experts will fill you in on five tips for selling an investment property in Wisconsin, so you can relax knowing you have made the right decision about selling your investment property.
Key Differences Between Short Sale and Foreclosure
After years of planning and saving for the future, an unexpected financial crisis, such as job loss, emergency expenses, or increases in interest rates, can sometimes turn your dreams of getting rich off investment properties into a terrible nightmare.
When hit with unexpected debt causing your mortgage payments to fall behind, you have two choices, a foreclosure or a short sale. In both circumstances, you must part with your home. However, each option has some benefits and downfalls.
Short Sale
A short sale occurs when you sell your investment property for less than the amount owing on your mortgage.
For example, you owe $300,000 on your mortgage, but your financial crisis has forced you to sell your real estate property for $275,000. After the sale, you must pay the $25,000 remaining on your mortgage.
Foreclosure
A foreclosure is when a borrower cannot make their mortgage payments, and the mortgage lender takes litigation action to seize the property after a certain number of missed payments. With a foreclosure, the lender gains ownership and can sell the property to recover the money lost.
What’s Different About Selling an Investment Property
One question often asked by homeowners is what’s different about selling an investment property. Owning a real estate property offers steady rental income, home appreciation, and a way to reduce taxable income by claiming business deductions on your income tax returns.
However, when it comes time to sell your rental property, there are differences from selling a primary residence, such as paying capital gains taxes.
When you sell an investment property, you are required to pay capital gains taxes to the IRS. You do not have to pay capital gains taxes when selling a primary residence. Capital gains tax is your net profit made after selling your investment property.
The IRS considers capital gains or losses when you sell an asset. Capital gains tax rates vary depending on your taxable income levels and the tax bracket your income falls into. Here is a list of other factors to consider when selling real estate property::
Capital Asset
The IRS considers many items you own to be capital assets you must pay taxes on. Some examples of capital assets may include:
- A home, or rental property
- Household furniture
- Stocks and bonds
Adjusted Basis
Adjusted basis is the purchase price you originally paid for your capital asset, including expenses in the sale, such as legal fees, transfer, survey costs, title insurance, real estate fees, and closing costs for sellers.
Short-Term Capital Gain
Short-term capital gains are assets held onto for one tax year or less and then disposed of. An example of a short-term capital gain is buying a home for $300,000 and selling it in less than a year for $350,000. The profit earned on selling your home is a short-term capital gain.
Long-Term Capital Gain
Long-term capital gains are assets kept for longer than a year before disposing of them. An example of a long-term capital gain is buying a home for $300,000 and selling it in five years for $400,000. The profit gained on the sale of your home is long-term capital gain.
Tax Payments
When selling investment property, the home-owner must pay property tax payments owing on your tax bill for the rental property, such as the depreciation taxes, on top of paying capital gains taxes.
When selling a rental property, take advantage of tax breaks to help reduce the amount of taxes owing, such as the following suggestions:
- Hiring a tax professional to do your tax returns for you
- Use your proceeds of the sale for replacement property
- Use the home as a primary residence to avoid capital gains tax
- Use tax-loss harvesting to lower the capital gains tax
Depreciation Recapture Tax
Depreciation deductions used by property management help reduce the taxable income owed on real estate investments. Tax deductions are beneficial for helping an investor save money and get a few tax breaks on their sale proceeds.
Married couples can file their taxes jointly. The married filing allows couples to fill out one tax form. Both spouses must mutually pay the tax liability, penalties owing to their tax return, and paying long-term capital gains taxes to the internal revenue service.
However, depending on their tax bracket, joint filers benefit from a lower income tax rate. If taxable income is under $80,800 annually, joint filers do not have to pay capital gains taxes.
How to Sell an Investment Property
Investing in real estate property is one of the best ways to profit from your hard-earned real estate investments through rental income.
However, when the time is right, there are several reasons property owners may be ready to talk to a real estate agent about selling their investment property, such as the following causes:
- Reliable tenants are becoming difficult to find
- Job opportunities in your hometown are slowing down
- You are ready for retirement
Although selling rental property can be challenging, it doesn’t have to be with the right advice from knowledgeable financial advisors. If you’re looking to sell your property quickly and hassle-free, consider contacting companies that specialize in buying houses for cash.
For example, if you’re in Milwaukee, you can search for we buy houses Milwaukee to find us because we can offer a fair price for your property.
However, before starting to think if you should sell your investment property or not, make sure you consider the tax implications, repair costs, and market conditions to ensure you’re making a smart financial decision. Here are five tips for selling your investment property and cashing in on your investment:
Tip 1: Determine Your Buyer
When selling your rental investment, the first step is to decide who you will sell your home to, such as real estate investors, an existing tenant, or first-time home buyers. The buyer plays a big part in helping you decide:
- Which avenue of sales to take
- Determine the sale price of your property
- If you will keep your existing tenants
Tip 2: Have a Home Inspection Done
Having a home inspection completed on your rental home offers several benefits, such as the following advantages:
- Ensuring your property is in tip-top shape for a home sale
- Pointing out possible repairs needed
- Giving prospected buyers reassurance the property is up to standards before finalizing the rental property sale.
Tip 3: Decide if You will Sell As-Is or Do Home Repairs
Sometimes buyers prefer a clean, freshly painted home on the real estate market rather than a rundown house that requires repairs. Some first-time investors are also looking for property to rent out to tenants immediately.
However, whether you sell your rental property as is or fix it up before selling is up to you. Some factors to consider when making your decision include the following considerations:
- The cost of repairs
- The time it will take to do repairs
- Will repairs earn a potentially higher sale profit?
Tip 4: Do a Property Lien Search
Doing a title search is beneficial for ensuring no previous liens against your rental property. Doing a property lien search will also prevent any hidden closing costs from popping up during the sale of your property.
Homeowners can have a lien search on their property for a relatively low cost and save themselves some surprises in the long run.
Tip 5: Inform Tenants About Your Intent to Sell Your Property
Informing your tenant about your intention of selling a rental property is always a wise decision for several reasons, including the following intentions:
- Informing your tenant about your intent to sell the property gives them a chance to make an offer first
- Informing your tenants about your intent for selling helps prevent bad blood
- Informing your tenants about your intent for selling gives them time to look for alternate living arrangements
Selling an Investment Property to Cash Home Buyers
If you live in Oshkosh, then selling your investment property to cash home buyers in Oshkosh can offer you several benefits, such as the following advantages:
- You do not have to wait for real estate agents to sell your property
- You receive a faster cash flow from cash home buyers
- You get what you are asking for the sale of your property
- Less paperwork, legal fees, real estate agent fees, and real estate tax fees
Selling your property to a cash buyer also helps to lower the stress levels of dealing with lawyers, legal fees, real estate agents, and credit issues with buyers waiting for mortgage approval from lenders. Cash buyers are a win-win when it comes to selling rental properties.
Conclusion
There are several things to consider when selling an investment property in Wisconsin. Whether you are searching for information on the differences between selling an investment property or a primary home, or looking for selling tips for your investment property, we have you covered.
In this article, our experts have provided you with useful information to take the worry out of selling your investment property.