Are You Nearing Retirement? What Should You Do With the Building?
July 2019 – Are you nearing retirement or beginning to make a succession plan for your company? Possibly you are the last wave of Baby Boomers making your way into retirement. Over the past several years a growing segment of our practice has become assisting business owners in making decisions around their commercial real estate, as they plan for their retirement.
As business owners begin mapping this process, they will have several options to consider; selling the company separate from the real estate, selling the business and leasing the real estate to the new owner or selling the business and disposing of the asset to real estate investor. The decisions will be driven by financial goals, current financial situation, current market conditions or other personal motivations.
Questions to Ask Yourself
As we tell our clients, “You only have one shot at selling the commercial asset”. Unfortunately, sometimes market conditions or the asset class might not be as strong or as desirable when nearing retirement. This can dampen the prospects for a big return. Here are a few things to consider if you are at this crossroads in your work life:
Has your property appreciated significantly in value since you purchased it? Are you liable to pay significant capital gains taxes?
If so, you should consider doing a 1031 tax-differed exchange. This means selling your current asset and shifting your equity into a new income-producing property. You should also consider triple-net leased properties. Even if you are across the country, all you have to do is cash rent checks. The tenant is solely responsible for the property.
Do you enjoy owning the property and think that it will appreciate further over time?
Consider leasing the property to the new owners of your business and become their landlord. Or if your property is sought after you could put it on the market for lease. You just have to switch mindsets, that you are now a professional landlord investor and not an owner/occupier of your building.
Are you tired of owning the commercial property but don’t want to pay the large capital gains tax on your appreciated property value?
Look for a buyer of the property that you can do owner financing for. When you do owner financing, you pay the capital gains tax in smaller installments as you receive the monthly mortgage payments from the buyer. You will still owe the same amount but it’s more palatable. The great thing about owner financing is that you can give up the hassles and liability of owning the property as a landlord. All you have to do is just collect the monthly payments.
Where does the value of the commercial property fit into your total personal wealth?
If you have debt on the property and its value is greater than fifty percent you should strongly consider disposing of the asset to rebalance your portfolio.
In the past twelve months, we have worked with seven different business owners who were nearing retirement. We helped them dispose of their commercial real estate assets. From architects to cab companies we can help you make sense of the best “next step” for your commercial real estate to maximize the return on your investment.
Tartan Properties Commercial is a leader in Northern Virginia commercial real estate sales and leasing since 1973. Call our office today for more information on the 1031 Exchange process and opportunities to acquire triple net investments that pay you rent every month.
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