Own Investment Real Estate? It’s a Seller’s market

For those of us who own investment real estate with simple inflation and given periods of supply and demand, we have seen our property values dramatically increase in value over time. Other than dealing with what we refer as “those Terrible T’s” including tenants, toilets, trash, turnover, toddlers, teenagers, telephone calls, termites and taxes, we treasure our rentals as part of our family. What we often don’t take time to consider is “what are my current and longterm plans for my properties?” Maybe it’s time for some Terrific T’s: Tennis, Travel, and more Time with family?

As financial advisors who provide overall comprehensive personal financial planning, we also have an expertise in helping our clients evaluate options for their
investment properties. We discuss the pros and cons of many options including:

• KEEP THE PROPERTY IN THE FAMILY?
• REFINANCE?
• SELL AND PAY TAXES?
• INSTALLMENT SALE?
• CHARITABLE TRUST STRATEGIES?
• EXCHANGE INTO NEW ACTIVE OWNERSHIP PROPERTY?
• EXCHANGE INTO PASSIVE DELEWARE STATUTORY TRUST (DST)?

As part of our evaluation, we are reminded that generally we are provided three basic benefits of investment property ownership: Tax benefits, income and potential appreciation. Many of the tax benefits of depreciation and other expenses decrease as years pass and tax benefits fade. As we age, our goal of long-term appreciation many times moves to a goal of income as a priority.

As part of our personal financial planning, we evaluate exactly how much income you are “taking home” after expenses. I am reminded of a client who happily said he had $1 million equity in his duplex and was receiving $5,000 per month (6%) in rental income. A simply review of his tax return (Schedule E) indeed showed gross income of $60,000; however, after expenses, His actual “take home” was $20,000 annually or $1,600 per month, or approximately only 2%.

Our “rule of thumb” is a take home of at least 5%. He was, unfortunately, also surprised to learn his $20,000 was also fully taxable pushing him into a higher tax bracket.

If you own investment real estate, be sure to consider your current and long-term goals for your property and work with experienced advisors who can assist you in helping you make choices that match you and your family’s financial goals. Time for some Terrific T’s?