Deciding when to sell your commercial real estate (CRE) property involves many factors. It shouldn’t be an impulsive or overnight decision unless absolutely necessary. Making a profitable decision requires time, research, discussion, and reflection.
Assessing the Right Time to Sell
There are methods to determine the optimal time to sell your property. This article will explore how to identify the best time to sell your CRE property and increase your chances of a successful sale.
Property Income vs. Sales Price
Two key values influence your decision to sell: the projected income your property can generate and its sales price. To make your property attractive to buyers, the projected income should exceed the sales price.
For example, if a property is projected to earn $6,000,000 in income but is listed for $5,000,000, it offers buyers an immediate $1,000,000 advantage. Conversely, if the income is $5,000,000 but the sale price is $6,000,000, it’s better to hold onto the property until the numbers improve.
Preparing Financial Projections
To assess your property’s viability, prepare a pro forma with the following:
- Financial projections of income
- Operating expenses
- Net Operating Income (NOI)
- Cash flow
- Capitalization Rate (Cap Rate)
- Internal Rate of Return (IRR)
- Equity Multiple
- Cash on Cash Return
Market Conditions and Potential Returns
As a CRE owner, studying your current market is crucial. Analyze the demographics of your competitors and potential buyers. Consider vacancy and interest rates in your area. Market trends can fluctuate, so trust the data when deciding to sell.
With this information, calculate two important values:
- Potential return upon selling
- Projected income if you keep the property
Compare these values with current market trends to determine if selling now is more profitable or if holding the property will yield better returns.
Operating Costs vs. Annual Return
Calculate your total annual operating costs against your annual property income. If the property fails to meet the required return percentage, consider selling before its value drops further.
For instance, if a property needs a 20% annual return to sustain operations but only generates a 10% return, selling is a better option. However, if you expect rent increases and steady leasing, holding the property might lead to greater long-term profits.
Competitive Prospective Buyers
Different buyers have varying needs and motivations. Larger companies with broader coverage areas might pay more for your property compared to local business owners. Understanding your potential buyers can create competition, allowing you to leverage a higher sales price.
Knowing your buyers helps you position your marketing effectively and identify the right audience willing to pay premium prices.
The Importance of Market Research
Finding the perfect time to sell your CRE property relies heavily on market research. Understanding current market trends enables you to make data-driven decisions. Analyze your competitors and potential buyers to better position your property in the market.
Tracking and trusting the numbers is essential for maximizing profit and securing better deals. Remember, market conditions are always changing, so continuous monitoring is necessary.
Hiring a Commercial Real Estate Broker
You don’t have to navigate the selling process alone. Hiring a commercial real estate broker provides access to expert opinions and helps secure better deals. Brokers have the knowledge and resources to assist you in making informed decisions and achieving successful sales.
Conclusion
Determining the right time to sell your commercial real estate property involves careful analysis and strategic planning. Conduct thorough market research, evaluate financial projections, and understand your potential buyers. By following these steps and leveraging professional expertise, you can make profitable decisions and optimize your CRE investments.
Even after outlining all the information above, determining when to sell your commercial real estate (CRE) can still seem daunting. That’s why the LeveragedCRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
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