If you’re thinking of investing in a property, then there are a few things that you should know before you take the plunge. This National Landlord Day, APO Financial are here to help you enjoy the benefits of real estate investing without all the headaches.
Residential real estate investing has increased in popularity over the past few decades – in fact, close to 20% of U.S. homes were purchased by investors in 2021. However, to be truly successful in real estate investing, before purchasing a property, an efficient business plan should be established that includes a researched, tried and tested exit strategy that aligns with your goals.
You’ve got a lot of options when it comes to the exit strategy in your real estate investments. You can sell, rent or lease out your property, and even consider flipping it if you think you can get a good deal on the market. But what happens if your plan doesn’t pan out as expected?
Not everything in life goes exactly as planned. Real estate investing is no different. However, you need multiple exit strategies to ensure a lower level of risk. When working with assets worth hundreds of thousands of dollars, failure isn’t an option. For some, cash tied up in property will need releasing – for personal or re-investment purposes – and it’s quite possible that landlords may need to regain possession of their property to live in themselves. As a result, the only option is to sell and exit the sector – partially or in full.
On this National Landlord Day, here are our top tips that you should keep in mind if you want to invest in a property and how to profitably exit.
Lease or Rent-to-Own
If you’re the owner of a property that you don’t need to sell right away, but want to eventually, a lease option agreement might be the perfect solution.
A lease option agreement is an agreement between a seller and buyer in which the seller leases their property to the buyer for a set period of time (usually 1-2 years), and then allows them to buy it for a predetermined price at the end of that period. The tight time frame protects both parties: it gives urgency to the buyer, who will be motivated by having to act quickly or lose out on their dream home. And it protects against outdated pricing if the market changes during that time period.
This strategy can be effective in slower markets where there isn’t enormous demand at the moment—but also when there is! In red-hot markets, it’s not as essential. This may even leave sellers burned by losing out on appreciation over the course of an extended option term.
Convert Your Property For the Short-Term
If you’re a landlord, you may have signed several long-term rental agreements over the years. Sometimes, doing so doesn’t always deliver the highest real estate cash flow you’d hoped for. Depending on your market, the property you have could generate better rental cash flow as a vacation rental or even an Airbnb.
Every market is unique and becoming an Airbnb landlord may or may not make sense for your specific property. Granted, there’s more to the decision that cash flow: managing a vacation rental takes far more work than managing a long-term rental. You can hire a property manager of course, but expect them to take a heftier cut than your typical long-term rental manager.
Bundle Multiple Properties
If you find yourself in the situation where you have multiple properties you need to sell, consider selling them as a bundle. Why? There are fewer buyers in the market for property bundles, but there are serious buyers with deep pockets. They can move fast and settle quickly.
Rented properties are also self-sufficient on a monthly cost basis. It costs a lot of money to carry vacant properties while trying to sell them, but sellers have the luxury to wait for the perfect institutional buyer to come along if they’re renting and earning money while on the market as a performing bundle.
There’s also an economy of scale at play here. It’s no picnic marketing seven vacant properties separately, but selling as a bundle means only one “product” to market and sell. This helps investors and marketing agents focus their efforts, and frees up more time and resources to market that bundle more aggressively.
Donate Your Property to Charity
When you donate an investment property to charity, you get to write off the equity in the property as a charitable donation deduction. You also avoid paying capital gains tax on it. And as a registered nonprofit, they don’t pay any taxes on it either.
That means you can avoid the hassles of hiring a real estate agent and marketing the property for sale. And you don’t have to carry it vacant while you list it—the charity will take care of that for you!
Pass Your Property to Your Children
As a landlord, we know you’ve got a lot on your mind, and we get it. You’re thinking about the future, and how much of a legacy you want to leave behind.
But here’s the thing: you don’t have to sell your rental property at all—you can just let it be part of your estate when you pass away.
In tax year 2022, the first $12.6 million in assets that you leave to your children is exempt from federal estate taxes. You can leave your investment properties to your children, for them to keep as passive income sources or sell as they see fit.
Between now and then, you can keep taking out rental property loans, letting your tenants pay them down for you, and then doing it all over again to keep cashing out even as you earn cash flow and the property appreciates.
Landlord Exit Strategies with APO Financial
With the Fiduciary advisors at APO Financial, you can enjoy the benefits of real estate investing without all the headaches.
Using a combination of tax advantage programs, opportunity zones and Delaware statutory trusts (DST), we help landlords exit the headaches of direct property management and eliminate or mitigate taxes.
Opportunity Zones: These are areas that have been designated as economically distressed based on certain census criteria. There are over 8,700 designated opportunity zones throughout the U.S. and its territories. Opportunity zones offer the following benefits for landlords:
- Tax breaks — tax deferral, reduction, elimination and potential tax-free income
- Separation of basis and capital gains
- Portfolio diversification
DST Investments: Like opportunity zones, DSTs offer several benefits, including:
- Passive investing
- Tax benefits
- Income generation
- Value appreciation
- Diversification
Ready to Take the Next Step?
As real estate investors grow their portfolios, they need to understand their options for disposal of properties when the time comes. Unfortunately, life is unpredictable and a lot can happen. In order to ensure minimal risk of your property or properties, it’s always best to have a contingency plan in place.
At APO financial, our advisors are highly experienced in landlord exit strategies and can help you build your portfolio to ensure safety of your assets. We offer many benefits to landlords including but not limited to, portfolio diversification, separation of basis and capital gains, tax benefits and tax breaks.
Contact us here today for more information about our services, products or approaches. We’ll schedule a meeting that is most convenient and comfortable for you, whether that is in person, virtually or by phone.
© 2022 APO Financial. All rights reserved. Disclosure: Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all.. Prior to making any investment, insurance, financial or legal decision, you should always seek individualized advice from a financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of your individual own situation Investment advice is offered through APO Financial Services, LLC (“APO") 10155 Westmoor Drive, Suite 175, Westminster, Colorado 80021-2627, an investment adviser registered with the Securities and Exchange Commission. Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered or that its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to APO are available at https://apofinancial1.wpengine.com. Additional information pertaining to APO’s registration status, its business operations, services and fees, and its current written disclosure statement is available on the SEC’s investment adviser public website at https://www.adviserinfo.sec.gov. Information relating to annuities is intended for educational purposes only and should not be construed as comprehensive or all-inclusive. Therefore, it should not be regarded as a complete analysis of the subjects discussed and should not be used to make an investment decision. Annuities can be an important part of an overall portfolio but may not be appropriate for everyone. Before purchasing an annuity, it is important to understand the details of the product. Certain products may not be available in your state. The terms of each indexed annuity varies. It is always important to speak to a financial professional. about an annuity’s features, benefits and fees, and whether an annuity is appropriate for you, based on your financial situation and objectives. Participation rates, cap rates and/or index spreads may be subject to change by the insurance company according to the annuity contract provisions. If the insurance company makes such changes, this could adversely affect the return. Guarantees of an indexed annuity are backed by the claims-paying ability of the underwriting insurance company. The surrender charge period for a product may be longer, and the surrender charges may be higher than other annuity products. Indexed annuities are long-term investments. If the annuity contract is surrendered early, there is the possibility of a surrender charge being imposed and/or the funds may be subject to income taxes. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances. With indexed annuities, there is the potential to lose money, depending on the product charges and minimum guarantee contract provisions. For additional information on annuities, reference the following websites: The FINRA (www.FINRA.org), the Securities and Exchange Commission (www.SEC.gov), Insured Retirement Institute (www.irionline.org), the National Association of Insurance Commissioners (www.NAIC.org) or your state's insurance department.