Market conditions are constantly changing, which makes owning investment properties a venture that requires adaptability. Whether you invest in commercial real estate or residential real estate assets, understanding when to go through the disposition process will maximize profits and protect you from potential losses.
This article will briefly explain what real estate disposition is and some common situations when real estate disposition is a necessary and valuable action.
What is the definition of real estate disposition?
Real estate disposition is the process of selling a property. This can involve selling one or multiple properties at a time. Every real estate business should master the process of selling strategically.
Selling at the right time enables you to capitalize on investment opportunities and unlock finances to take the next step in your journey. There are also other situations in which disposing of an investment is necessary to meet a specific need. What are they?
To access cash flow
In some cases, real estate investors may need to dispose of an investment to access cash flow from equity. This may happen when an excellent investment opportunity arises and selling one gives them access to otherwise locked cash flow.
An investor may also choose to sell to get enough funds to cover a loss and regain financial stability. By quickly disposing of one or more properties, you can use the proceeds to pay off debts, fund newly available properties, or get yourself out of a tough financial spot.
To cut your losses
While investors may purchase properties with long-term appreciation in mind, market conditions can change quickly. Home values or rental rates can dip under certain situations, such as a growing crime rate. In this case, you can dispose of your real estate investments to minimize loss.
Or, perhaps a property’s condition rapidly declines due to a natural disaster or other types of damage. If repairing the investment costs more money than it’s worth, you can let it go and take as much as you can from selling it to cut your losses.
Though selling before your desired holding time means that you don’t earn as much as you wish, you still prevent losing more money due to declining conditions.
To diversify your portfolio
Successful real estate property owners continually rebalance their portfolios to protect themselves against fluctuations within a single asset type or market. This practice is important for long-term investing success.
If your portfolio consists primarily of real estate investments, disposing of one or more properties in exchange for another asset type, such as a multifamily unit, or finding a property in a different location allows you to move money around safely for proper diversification.
When you fix and flip houses
If you enjoy the short-term returns from flipping houses, then selling right after rehab is the name of the game. List your home on the open market to potential buyers to get top dollar by offering a quality, renovated home. Doing this real estate transaction as quickly as possible after rehab will also reduce expenses related to owning the property.
When the holding period is over
If you buy and hold real estate, there comes a time when you can sell your rental for a significant profit. After a property has given you financial success and developed equity, liquidate your investments and move on. A professional property management company can greatly ease this transition by informing you about lease timelines, enabling you to time the sale right.
Sell Your Investments With Marketplace Homes
Real estate disposition can benefit investors in certain situations, but it’s important to understand the risks involved before making any final decisions.
When you do your research and work with a brokerage that specializes in investments, get expert guidance through the process. With their help and that of a financial advisor, you can make an informed decision about when you need real estate disposition.
Alicia Persson is the real estate content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she plays keytar and does female lead vocals in a local 90’s band or spends time with her amazing family.