How to Sell Investment Property for Profit

The whole concept of buying investment property is to make a profit. If the property has been consistently depreciated, recapturing that depreciation will add to your taxes, and you should account for that. Follow the steps below to make a profit on your property.

Instructions

Difficulty: Moderate

1. Find an area where property is rapidly appreciating, or could soon be, due to new developments in the area.
2. Choose the ugliest house in the best area. You want to be able to improve on it to increase the value.
3. Calculate the costs involved with the sale of the property. Add this amount to the investment you've already made and the amount of tax on any recapture of depreciation if you have chosen to rent for a while.
4. Increase the curb appeal of the property through minor, inexpensive repairs that create a good first impression. Inexpensive landscaping, such as banks of flowers, contribute greatly to curb appeal.
5. Decide if you will hold it over a year to change the taxable incident to long-term capital gain. The tax savings are usually impressive.
6. Live in the property for at least 2 years to save on taxes. The sale of a residence can exclude up to $250,000 of profit in a person's lifetime. Married couples get $500,000. This is a considerable savings on taxes to increase your actual profit.
7. Use a 1031 exchange to avoid immediate taxation. A 1031 exchange requires special paperwork at the time of sale. It states that you're going to reinvest in a like-kind property. No tax is due on the profit, which increases your profitability.

Tips & Warnings

• Never try to have the most expensive house in the neighborhood. If you have a $200,000 home in a $50,000 neighborhood, learn to love the house, since it won't be easy to sell.
• When using a 1031 exchange, the tax becomes due at the sale of the final property you invest in. It could be considerable.