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Putting a fair price on your rental real estate before divorce

On Behalf of | Dec 2, 2019 | Uncategorized

Running a business with your spouse can seem like a great idea. Many couples work together to develop a viable business plan and build a viable revenue stream for their families. Real estate investing remains a popular way for those with liquid capital or great credit to invest and generate an ongoing stream of income.

By purchasing properties and fixing them up or preparing to rent them to tenants, you provide a much-needed service to your community while generating substantial income with which to support your family. Unfortunately, your entrepreneurial spirit may very well complicate your divorce.

The business that you have both worked to start and the real estate you have acquired will likely become points of contention as you seek to end your marriage. Making sure you get a fair share of those marital assets usually starts with putting a fair price on your real estate investments and exploring the income generated by your various rental properties.

Find the fair market value for each property

Certain assets are harder than others to put a price on in divorce. A bank account, for example, has a clear-cut value that you can report. On the other hand, other assets may have a variable value that is hard to estimate. All too often, people facing a divorce will turn to the original purchase price of an asset to determine what value to report to the courts.

However, with some of the most valuable assets you have, such as the investment properties that you and your spouse rent as a source of income, the purchase price is not a fair representation of the item’s value. Real estate holdings tend to accrue value over time due to both inflation and the ever-increasing demand for housing as population increases. Additionally, you and your spouse may very well have purchased foreclosed or distressed properties for a fraction of their potential value.

The price that you paid will not reflect changes in the market or the amount of rehabilitation done on the property. From the use of contractors to sweat equity and work you perform yourself, changes you’ve made to the condition of the home can drastically alter its fair market value. Instead of trying to guess at a figure that is reasonable for each property, the best way to handle the situation is to call in the professionals.

Appraisers can help you set a value for each property

Real estate appraisers have extensive knowledge of the various systems that compromise a home. From understanding HVAC systems to wiring, an appraiser must be able to determine the condition of many different aspects of a home.

They also need to have a working knowledge of the local real estate market and what other, comparable properties nearby have sold for in recent months. Reviewing all of this information allows an appraiser to put a realistic fair market value on the home. Once you know what the property itself is worth, you can then explore the income potential.

Consider the value of your rental business

Placing a fair value on rental properties may be easier than putting a price on the business that you have built with your spouse. From current and potential future rent income to ongoing accumulation of value in the properties themselves, you need to look at what the business will likely generate over the next few decades.

For some people, the simplest solution will be to request an even split of the properties based on value or location. For others, asking their spouse to buy them out is the better option. In some families, it may even be possible for you both to agree to joint ownership of the asset and the business after the divorce.