Even if you’re a firm believer in the value of a “buy and sell” investing philosophy, you’ll still likely agree that there are times when it’s appropriate to sell an investment from your portfolio. And given the effort and transaction costs that go into real estate investment transactions, it’s important to be confident that you exit from a real estate holding when the time is right. Here are some considerations you’re certain to make when conducting your analysis.
You Need the Liquidity.You may decide that it’s time to sell a particular piece of real estate from your self-directed IRA if you need the liquidity. Unlike other types of investments, most real estate holdings are an “all or nothing” proposition. In other words, whereas you can pare down your investments in a particular stock by selling a portion of your shares, you usually have to sell your entire piece of real estate outright in order to exit the investment.
If your financial situation or your overall investment strategy dictates that you have more cash available in your self-directed IRA, then selling a real estate holding might be the best path towards improved liquidity.
Market Conditions Have Significant Changes. When real estate market conditions change significantly, the best financial decision may be to sell your real estate holdings. For example, this might be because the relevant market for the real estate you hold is no longer strong, and you’d rather have your account funds working for you in a different asset class.
On the other hand, you might believe the real estate market has gotten overheated, and that the market value for a piece of property you hold is significantly in excess of its intrinsic value. This might dictate an immediate liquidation so that you can take advantage of the favorable market conditions.
Your Investment Assumptions Have Changed. When you used your self-directed IRA to make the initial real estate investment, you had a number of assumptions in mind. Perhaps you bought a distressed property in a location that you thought would turn around economically within the next five or 10 years. Or maybe you bought a multi-family unit based on assumptions of the cash flow it would generate for your self-directed IRA. But if you’ve found that your assumptions aren’t holding true, you may determine that it’s best to exit that particular real estate investment and direct your funds elsewhere.
Things are Going According to Plan. Finally, you simply may decide that it’s time to sell a real estate holding from your self-directed IRA because things have gone according to plan. If you initially made the investment looking for a particular amount of capital appreciation, and you’ve now reached that amount, you may choose to follow through on your initial plan to sell.
If you aren’t familiar with some of the administrative steps necessary to purchase or sell real estate within a self-directed IRA, contact Quest Trust Company today.
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