Understanding Disposition in Commercial Real Estate

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Disposition of real estate might sound like a complicated thing, but in reality, it is liquidating real property. Whether you are disposing to improve your business or get a better amount of cash in hand, the investing process is quite inevitable. 

But there are a lot of questions associated with the disposition of real estate property. If you are confused about this position, read ahead to get all the essential details.

Disposition in real estate-what is it?

In general terms, a disposition is a process of liquidating the available assets to acquire funds in hand. The funding is used for financing other business ventures or to improve the cash flow in the business. 

You might have heard of disposition of stock or other assets; disposition of real estate is similar. In such a case, the term disposition refers to a process to sell the real estate property for acquiring funds. 

The disposition is generally considered the last step for commercial real estate investments.

Disposition process

To better understand the disposition process, it is vital to discuss the set under a whole competition real estate investment life cycle.

The first step is to find a property suitable for the requirement. In most cases, it involves analyzing the market and reviewing numerous investment opportunities to find one which meets the criteria. Generally, the investors find 3 to 5 properties during the initial screening to take them to the second step of the life cycle, which is underwriting the property.

The second step involves due diligence of each property. During the financial analysis, a review of the historical financial statements, calculation of crucial investment returns, and future income and expenses projection are identified. When the cash flow and return are per the investors’ return objective, he offers the property.

If the offer gets accepted, commercial real estate acquisition is completed, and then the property goes to the management phase. It includes the key responsibilities, including paying expenses, collecting rent, and ensuring the property is suitable for visitors and tenants. 

The first two steps are relatively quick, then the property management phase. Many investors hold the property for 5 to 10 years before moving to the last stage.

Before acquiring a property, the financial model advises saving the property for a specific price for desired returns. When the market conditions are in favor and the price is achievable, then the disposition process begins. 

It starts with a review of the prices for the recent sale of properties, including the real estate services of a brokerage, finding potential buyers, listing the property, and finally disposing of the property.

Disposition in real estate property-what strategies to use?

Now that you better understand the real estate transactions, the next step is to understand the strategies one can use for this position as an investor. Here are three options available for you.

• Sell the property in a traditional sale

If you aim to sell the property through conventional means, you need to hire a commercial broker who can help you determine the right market value of the property and put it out for sale. In this scenario, you will be looking for buyers who get traditional financing from the bank and other institutions.

• Set property with owner financing

In contrast to the typical financing options for real estate assets, the investor purchasing a property with owner financing does not rely on traditional institutions for a loan. Instead, the seller becomes the lender and allows the buyer to pay the amount directly to him over time. If you are considering this method, you must draft a mortgage and mortgage note to ensure the buyer is legally bound to pay the amount.

• Opt for 1031 exchange

Once you have sold your initial investment property and are interested in taking the tax liability, you can consider a 1031 exchange. The process involves using the amount from the property sales to purchase a similar kind of investment property. But remember, such exchanges are subject to different rules and time frames. Thus, it would help if you kept them in mind to get the best outcomes.

Tips for disposing of a property

Consider the tips to get the best shot in trying to find an interested buyer. 

Hire a known commercial broker

It is advisable to hire an experienced and known commercial broker to help you with the disposition process. The professional assistance will help take the temperature of the local market and decide the fair value for your property.

Also, they will put out the property for sale and connect with you the interested buyers. This for sure will be one way for making the complete process very easy and also hassle-free.

Stay prepared with paperwork

Before you put out your property for sale, make sure all the required documents are ready. It is considered a standard process to offer the interested parties a pro forma; if you have a tenant in the building, you need to provide them with a lease copy. Similarly, if there is an easement on the property, you need to provide them with the paperwork.

Respond quickly to offers

You must ensure that you respond to the offers without any delay. Although it might seem tempting to hold an offer hoping to get something better, playing hard to get a good deal won’t work in your favor.

There’s a chance the interested party might look for another property. If your commercial real estate is a known joint venture, ensure the associated parties are a part of the decision to be made after the offer letter gets submitted.

When and why consider disposing of a property?

In general, there doesn’t exist a right answer to when and why to dispose of a property. Instead, investors must rely on their expertise and knowledge of the market to make the decision. Here are two reasons to sell.

A great offer

Investors get offers from different buyers that are hard to ignore. It comes before the end of the holding period, but the price is great and can offer excellent returns to the shareholders.

Time is up

When the investment is at the last stage of the planned holding period, the investors want to get back their money. To return, it is essential to selling the property. However, when the market condition is favorable for a profitable sale, you can extend the holding period until it improves.

Just as important as purchasing a property at the best price, selling at a reasonable rate is essential. This is because it can make a great difference in the profitable transaction.

Conclusion

Every property owner, at some point, will want to liquidate his assets to scale is business or to increase cash in hand. However, you must move ahead with the proper process and strategies to ensure a profitable result. 

Considering this guide on how to dispose of commercial real estate property, keep that in mind. With this knowledge, you will know the right time and way to make the disposition process easy and convenient for you. Besides this, make sure you have professional assistance to help you throughout the process.

Private Capital Investors can be the best choice. The company has experienced professionals who can guide you about the process and bring forward great deals and offers. With their professional help, you need not have to worry about any step as you will get all the support you need to dispose of your property at a reasonable rate.

Want to learn more? Get in touch with us today.

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