DEAR BOB: We are considering listing our 48-unit apartment building for sale. So far, we have spoken with two Realtors. We would like to know what sales commission to expect to pay on a $3 million sale. The standard rate for houses in our area is 6 percent commission. One of the Realtors wants a flat commission. The other has some sort of pyramid-style system involving starting out at 10 percent and going down to 3 percent after a certain amount, all combined together. What guidance can you give? –Ellen A.
DEAR ELLEN: You need an apartment sales specialist who only sells commercial and apartment buildings. Stay away from sales agents who specialize in single-family sales.
Purchase Bob Bruss reports online.
Real estate sales commissions are negotiable, especially on $3 million income property sales. According to Real Trends, the average home-sale commission is now 5.1 percent so your commission should be less than that.
Interview at least three or four apartment and commercial property sales specialists who sell apartments in your vicinity. Listen to each agent’s listing presentation, including his/her quoted sales commission rates.
Let each agent “sell” himself or herself to you, not necessarily based on the sales commission rate alone. Check out their references of recent sellers of large properties like yours before selecting the best agent for your situation.
INFORMATION ON STUDENT HOUSING
DEAR BOB: My son is going away to college. We want to buy a two-bedroom condo for him so he can rent out the second bedroom. Do you know of a book or articles about this type of rental? The plan is to sell the condo after he finishes college. Would we get the $250,000 tax exemption just like selling a primary residence? –Edna D.
DEAR EDNA: If your son’s name is on the title, after ownership and occupancy of his primary residence for at least 24 of the 60 months before the condo’s sale, he would be entitled to the Internal Revenue Code 121 exemption up to $250,000. However, you won’t qualify because the condo won’t be your principal residence.
Although I have not yet read it, there is a new book, “Profit by Investing in Student Housing: Cash in on the Campus Housing Shortage,” by Michael H. Zaransky, which should answer your questions. It is available in stock or by special order at local bookstores, public libraries and amazon.com.
IS DEPRECIATION RECAPTURE TAX 25 PERCENT OR 40 PERCENT?
DEAR BOB: I always read your excellent articles. But I think you made a mistake a few weeks ago. You said a seller of a depreciable building, such as an apartment building, must pay a 15 percent federal capital gain tax, but there is a 25 percent “depreciation recapture tax.” That means the seller is actually paying 40 percent on the depreciation that has been deducted so the investor is taxed twice. Or am I missing something? –Patricia H.
DEAR PATRICIA: There’s only one tax on depreciation recapture. Suppose you have deducted $40,000 of depreciation on your apartment building before selling it. Also, suppose your total capital gain on that sale is $100,000.
Of that $100,000 total capital gain, you will have $40,000 “recaptured,” which means taxed at the special 25 percent federal depreciation recapture tax rate. The other $60,000 will be taxed at the maximum 15 percent federal capital gains tax rate. In addition, there may be state capital gains taxes also payable. For more details, please consult your tax adviser.
The new Robert Bruss special report, “Five Easy Ways to Buy Your Home and Investment Property for Nothing Down,” is available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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