Submitted by 2021 Presenting Show Sponsor: Campgrounds4sale.com
Is now a good time to sell your campground?
That mostly depends on how tired you are, but being in this industry for 20 years, I can tell you it can be fatiguing to make every weekend of the summer about someone else having a good time! So if you don’t have family intending to take the reins from you, now may be a very good time to consider selling.
The market is hot and interest rates are still great! Financing options are incredible at the moment too!
Based on the current government trends and the talk of Capital Gains rising sharply – now may in fact be the right time to sell. The sale of a property typically triggers depreciation recapture and capital gains taxation. Let’s say you have $1 Million dollars of exposure to capital gains. If they increase by even 8 percent, that is an additional $80,000 in taxes! If we just look at the implications as of today – at 20% capital gains – that is $200,000 of capital gains taxes on $1 Million dollars of depreciation recapture.
There are some ways to help minimize your immediate and/or overall exposure. Let’s discuss some of them:
Seller financing – holding some or all of the note.
This option can be great if you like and trust your buyer, because it can allow you to spread your $200,000 of exposure at the time of the sale, potentially over time. Since the property is being sold with financing, the repayment of the loan is made in installments over time, which spreads the gain over a period of years. For example, By financing a property for a period of 10 years, you turn your one-time tax hit of $200,000 into a capital gain tax of $20,000 per year over 10 years. The higher the capital gains go up the more this option may become more viable. You also gain in passive income because you can charge interest on the loan you are providing. So long as you comply with current laws you can charge slightly higher interest than the bank, and you can create your own terms – such as a balloon payment when you want and creative payments centered around the camping season. More during the season and less during the off-season. All great options.
1031 Exchange – this is another option, even if you don’t want to stay in the campground industry.
This exchange allows you to exchange one property for a “LIKE-KIND” property. For example – a 55 and older community that pays rent to the landlord could be a good swap and you could have a management team collecting the rents for you and create your passive income in that way and avoid potentially all the capital gains but still enjoy a great monthly income.
Pay the gain – potentially before the rates go up, you may elect to take the money, pay the taxes and simply ride off into the sunset.
With rates really low and interest in this industry extremely high, premium prices are very common, so you might actually make enough on the sale to make the capital gains taxes more acceptable to you.
In any event – I am well positioned to help you with this very important decision and look forward to working with you to determine if now is the time and which approach works best for you!