Selling multifamily property: The 6 most important aspects
When selling an apartment building, there are several aspects to consider. Basically, however, there are six aspects that owners of a multi-family house absolutely must consider when selling. These aspects are:
- Assessment and valuation of an investment property
- Preparation of all documents and professional market appearance
- Sale of the apartment building before or after renovation?
- Selling the apartment building as a whole or selling the individual apartments?
- The sale in a bidding process
- Costs and fees incurred in the sale
Within the framework of these six aspects, there are ten main questions that provide important guidance and decision-making assistance within the sales process for owners of an apartment building:
- What is my goal in selling my apartment building and how do I use the proceeds??
- What sales price do I want to achieve?
- How to sell my property most wisely?
- Which sales documents do I need?
- When I want to sell my apartment building?
- Can the existing tenants thwart my plans to sell the property??
- In which form do I sell my apartment house?
- Is there capital available for redevelopment and / or subdivision into condominiums?
- Can I control the renovation process myself?
- What fees and taxes do I have to expect when selling?
This article focuses exclusively on the following two aspects: Assessment and valuation of an investment property and the costs and fees involved in the sale. You can also find a free checklist in our free guide on selling a multifamily property that will walk you through the entire selling process.
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Assessment and valuation of a multi-family house
In order to determine a realistic selling price for the property, a market value estimate is required. Various valuation methods can be used for this purpose. These include:
- Real value method
- Capitalized earnings value method
- Hedonic method
- Discounted cash flow method
Often the Earned value method applied, since the buyer’s main concern is usually the return on investment. In the process Income compared to expenses. The resulting Balance, the rental income, will capitalized with a certain interest rate and converted into a capital value. The discount or capitalization rate used in this process can again be calculated in different ways:
- Analytical procedure based on market data
- Synthetic method based on the opportunity cost principle
- Derivation of interest rate from equity and debt capital
- Determining the discount rate using statistical analysis of transactions
In general, the lower the general interest level, the higher the value of the property.
Note: The lower the general interest rate level, the higher the value of the property.
Preparing all documents and professional market presence
High-net-worth individuals and real estate funds value transparency in their investments and professionally prepared documents and records. This reduces their risks as a buyer of multifamily property and it speeds up the transaction. Therefore, it is important that all documents such as land register excerpts, floor plans, insurance certificates, but also documents on the substance of the house and the
Modernization measures of the last ten to twenty years are present. This way, the potential buyer can quickly get an idea of the condition of the property.
A professional partner is worth the money
Using a professional partner has various advantages when selling an apartment building, as real estate professionals on the buyer’s and seller’s side meet as equals:
- The professional partner has a network and may already know the investors and real estate funds in question
- He obtains missing documents and prepares a high quality sales dossier.
- He develops the market presence and serves print as well as online channels.
- The professional partner prepares the sales brochure, takes photos of the property and virtual tours.
- He masters innovative marketing tools, such as z. B. Drone photographs.
- The professional partner prepares detailed reports on the inspection of the property with potential buyers upon request.
- He accompanies the seller from A to Z through the sales process up to the notarization at the notary’s office and he handles all formalities.
Costs and fees incurred during the sale
If a multi-family house is sold, costs, taxes and fees are incurred. Mostly these are regulated on a cantonal level.
Notary and land registry fees
The notary and land registry fees vary from canton to canton. For example, notary fees in the canton of Zurich are 1.5 % and the land registry fees 2.5 % of the purchase price or sales price respectively. Normally, these fees are borne half by the buyer and half by the seller.
Real estate transfer tax
The transfer of ownership tax is also regulated on a cantonal level. However, there are also cantons in which the transfer tax no longer exists.
Real estate gains tax
Multi-family houses are comparatively more often traded as investment properties with a short or medium-term holding period. In order to put a stop to real estate speculation, the real estate gains tax was created. The amount of this tax depends on the period of ownership of the property and on the amount of the realized profit. The following applies: The shorter the holding period, resp. The higher the profit, the higher the tax rate.
Note: The shorter the holding period, resp. the higher the profit, the higher the tax rate.
In the canton of Aargau, for example, there are graduated tax rates for each year of ownership until the sale of a property. The sale during the 1. The first year of ownership is taxed at 40% of the taxable gain on the property, and from the 25th year onwards, the taxable gain on the property is taxed at 40% of the taxable gain on the property. In the first year of ownership, 5% of the profit must be paid as tax.
If the apartment house is sold through a real estate agent, there are fees for his services, which are usually borne by the buyer. The commission, also called brokerage fee, for multi-family houses is, according to experience, between 1.5% and 2% percent of the sales price. The higher the sales price of the property, the lower the commission.
In addition to the commission, an agent may charge advertising costs, travel expenses and other expenses related to the sale of the property. These expenses must be contractually agreed and are incurred regardless of the sale of the property.
Note: The higher the selling price of the property, the lower the percentage commission.
Selling an apartment house by bidding
The seller of a property is not obliged to fix the price of his property. In order to achieve the best sales price for above-average attractive apartment buildings in particularly advantageous locations, the so-called bidding procedure can be an interesting option.
In the bidding process, the investment property literally goes under the hammer, because similar to an
auction, the owner of the house launches a competition in which the highest bidder wins. The process starts with a viewing appointment, during which potential buyers can inspect the property and receive documentation of the real estate. You then have to present your offer within a certain period of time.
Advantages of the bidding process
- The seller does not have to organize an individual viewing for every prospective buyer.
- The public viewing date gathers the potential bidders and – in the best case – builds up competitive pressure.
- As a result of this pressure, bidders tend to be willing to go to their financial pain limits.
- The deadline for submitting the offer means a time limit, which speeds up the sales process.
- The seller does not have to set a minimum bid, which may not be achieved.
- In contrast to compulsory auctions, there is no obligation to sell, so the bidding procedure can also be used as a means of a market valuation.
Disadvantages of the bidding procedure
- In the relatively manageable submarket of multifamily housing with a rather small potential buyer base, interested parties may know and agree with each other.
- The bidding process is not a commonplace means of driving up the price of poor properties – here, too, quality is the best prerequisite for a good sales price.
Selling an apartment building: as a whole or as individual apartments?
Basically, there are two options when you want to sell an apartment building: as a whole or selling the individual residential units. If the existing rental apartments are to be put on the market individually, various considerations must be made. Are the apartments sufficiently attractive to be offered individually? Which conversions must be made in order to successfully establish condominium ownership? Are the funds to be invested recouped through the individual sale of the apartments or – even better – outbid?
Not every apartment building can be turned into residential property. Houses built in the 1980s and 1990s are more suitable than older and more recent buildings, as they were built more generously in this period. In addition to criteria such as room layout, floor plan, balcony size, or dimensions of common areas, such as z. B. laundry room or garages, the question is whether the initial structural situation and the expected need for renovation justify the conversion.
Especially in the case of older apartment buildings, adjustments for sound insulation measures between the apartments, modifications of the apartment floor plans, renewal and adjustment of the building services or energetic measures, e.g., energy saving, are necessary. B. contemporary facade insulation of the house or conversion from an old heating system to a modern energy source often turn out to be expensive. In principle, buyers of condominiums have higher demands on the location and design of apartments than tenants.
The division of the apartment building generates both additional expenses and additional income
It should be noted that the conversion of the apartment building into residential property not only causes additional construction costs, but also administrative and notarial costs. It is necessary to establish the condominium ownership (definition of the extent of each apartment), the value quota (the percentage of value of an apartment in the entire apartment building), the special rights (components within an apartment unit that can be eliminated or redesigned at will, z. B. the slab floor in the bathroom), the common parts of the property for general use (z. B. define the staircase, visitor parking) and the renewal fund (into which all owners pay annually to cover future common maintenance and renewal costs). Subsequently, each individual condominium must be marketed separately. It can be assumed that the sale of an apartment building "in tranches" requires more time and money than the sale as a whole.
Do not forget the existing tenants
A great deal of attention must be paid to the tenants for two reasons. Indeed, the analysis begins by asking tenants about potential resistance that could lead to unwelcome and therefore costly delays in the redesign process. That is why it is advantageous to start the dialogue at an early stage of planning. Secondly, nowadays many tenants would like to be owners. It is therefore obvious to ask the current residents first if they would be interested in buying "their" apartment after the conversion. A clever set of arguments that emphasizes the advantages of buying property may already generate the first buyers.
Those who do not shy away from the usually considerable investments, the lengthy planning and conversion periods, and the significantly longer sales process can usually achieve higher proceeds by selling the individual apartments than for the apartment building en bloc.
Selling multifamily property as individual apartments: Advantages and disadvantages
- Disadvantage: Longer selling process than selling as a whole
- Advantage: Generally higher proceeds than selling as a whole
- Disadvantage: Lengthy planning and conversion times
- Disadvantage: Additional costs (construction, administrative, marketing and notarial)
Selling multi-family house as a whole: Advantages and disadvantages
- Advantage: Shorter sales process than selling as individual apartments
- Advantage: Lower costs (construction, administrative, marketing and notarial)
- Disadvantage: Usually somewhat lower proceeds than when selling as individual apartments
- Advantage: Shorter planning and conversion times
Selling the apartment building before or after renovation?
In order to increase the potential sales price of an apartment building, it is worth considering carrying out a refurbishment beforehand. However, such a renovation must be carried out comprehensively and with professional support (architect, energy consultant, etc.).), because as already mentioned, buyers of apartment buildings are mainly real estate professionals. And they know building materials well.
The question of the sense and scope of a prior renovation is answered by construction professionals on the basis of a property analysis to be prepared with a maintenance checklist and photo documentation. The analysis shows the development potential of the property and specifies the budget for extraordinary maintenance. The renovation measures to be taken are prioritized and the costs are allocated to the z. B. spread over the next ten years.
Brush renovations scheduled for the short term should be avoided. Instead, it is advisable to develop a comprehensive renovation strategy with the help of experts long before the property is sold. This shows the long-term investment needs, but also the potential federal and cantonal subsidies that will benefit the owner of the apartment building. These are paid in particular for energy-optimizing measures: replacement of windows, facade insulation, replacement of fossil fuel heating systems, etc.
A long-term renovation strategy requires serious planning and is capital-intensive. On the other hand, the gradual renewal of multi-family buildings is advantageous from a tax point of view, as the expenses break the progression and can noticeably reduce the tax burden of the property owner over the years. If there is neither time nor capital for a renovation strategy, it makes more sense to set the price of the multifamily house lower, rather than work
that the potential buyer might do differently.
Selling a multi-family house is significantly more complex than selling an apartment or a single-family house. On the one hand, the reference groups are demanding: the buyer is usually a professional player whose sober main drive is the return on investment. And tenants these days are quite knowledgeable about landlord-tenant law and how to drag out a transaction.
On the other hand, market timing and pricing issues are more complicated, making the
The seller should contact a proven real estate professional who will accompany the process. His experience and services are worth their price. And are often recouped in the selling price.