6 a home inspection before you list the property so you are at least aware of is- sues that could affect its value even if you decide against making those repairs. Aaron Schroer, owner of Tennessee Home Inspectors, says having a home inspected before listing can help you avoid surprises, sell the home faster and, if you address the issues, stream- line negotiations during the buyer’s inspection period. It has an added benefit if you have tenants in the home. By framing it as a “maintenance inspec- tion,” you can have the home inspector evaluate the property, and then you can begin making repairs while the tenant is still in place. He may suspect you are getting ready to sell, or not. There are other advantages to having a home inspection before letting the tenant know you are selling, Schroer says. A home inspection may plant the seed that you’re thinking about selling and allow the tenant some extra time to get used to the idea, possibly diffusing some hard feelings. Plus, the inspec- tion will include photographs—if the tenant causes damages on the way out, you have a photographic record of its “before” condition. RENOVATIONS There is no hard and fast rule about renovations—what you should do, what you shouldn’t do—other than you shouldn’t put more money into the renovation than you can get back out of it. Take a cue from the neighborhood. What’s the market like? What’s the norm? Paliukaitis points out that if you have a property in Manhattan Beach, for example, it doesn’t make sense to make any repairs or renovations because buyers are knocking down homes to build bigger, newer ones. In other areas, though, you might need to do more than re-carpet and paint to successfully market your property, he says. Chandler goes into more detail. He suggests making renovations that yield the highest return on investment, with your budget in mind. For example, let’s say you have the choice between spend- ing $5,000 and increasing the property’s
A HOME INSPECTION MAY PLANT THE SEED THAT YOU'RE THINKING ABOUT SELLING AND ALLOW THE TENANT SOME EXTRA TIME TO GET USED TO THE IDEA, POSSIBLY DIFFUSING SOME HARD FEELINGS.
7 value by $7,000 or spending $30,000 and increasing the property’s value by $50,000. Assuming you have the funds, it makes sense to spend $30,000 and get $20,000 versus $2,000 out of the sale. Sometimes, you have to make renova- tions to sell. Kimberly Smith of Avenue West says she dropped the price $30,000 on the corporate rental she was trying to sell but still couldn’t generate inter- est. After putting less than $10,000 into updating and staging it, it sold for the original asking price in less than 30 days. “It’s in your best interest to put some effort into making the house look good,” she says. TAX RAMIFICATIONS You also need to take into account the tax implications of selling. The first step is to determine your adjusted cost basis by adding capital improvements and the cost of selling the property (such as advertising and agents fees) and subtracting the cost of selling the property. To calculate your gain (or loss), you would subtract the adjusted
cost basis from the selling price. The IRS classifies capital gains as either short or long term, depending on whether you hold the property for more than a year. Most investors pay 15 per- cent on their long-term gain. Since you may be able to offset your gains either partially or fully, discuss your options with a tax professional. Occasionally, investors get a surprise when they start looking at the tax impli- cations. Matt Carbray of Ridgeline Fi- nancial Partners says he recently worked with a woman who held a property for over 40 years. Because her cost basis was so low (it generally gets lower over time) and because she took depreciation, she had a taxable event of $100,000. You definitely want to be aware of this be- fore—not after—you sell and are on the hook for the taxes, he says. •
Teresa Bitler is a regular freelance contributor to Think Realty Magazine. Contact her at teresa@teresabitler.com
116 | think realty magazine | may :: june 2016
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