How can real estate investors make their buy and hold properties even more profitable?
Buy and hold real estate continues to be a popular investment strategy amongst savvy NY investors and families. However, there are many factors which can impact the profitability of those financial moves along the journey. Here are some quick tips to get the most out of your assets.
One of the problems that plague long term hold investors is putting off maintenance and repairs. The longer you leave an issue unchecked, or poorly patched, the more expensive it can become. A small roof leak can become a toxic mold problem. A drainage issue can become a major foundation problem. Tackle these things early to maximize long term cash flow and value.
Taxes will likely make the biggest difference in your real net returns. Some may pay as much as 40% more in taxes when restructuring portfolios and trading up properties than others. Fortunately, there are legal tools, like the 1031 exchange which can be used to minimize tax liability. IRA investing may even offer tax free gains. Make sure to talk to tax experts to avoid leaving more money on the table than you need to.
Smart Tenant Selection
Who your tenants are will largely dictate your cash flow and overall returns. Some get too bogged down in metrics like credit scores and debt-to-income calculations, or vetting backgrounds. These things can be important, but often how your tenants treat your property is even more important. Select those that will take care of it, and maybe even improve it, versus causing damage.
Efficiency in Property Management
There are so many new tech tools to be used in property management today. They offer increased efficiency in daily property management. They make delivering great service easier, help streamline receiving and processing tenant requests, and provide better clarity and organization in bookkeeping. Use them to drive down operating costs, and to increase your net cash flow, and future resale value.
Right Legal Structures
Profiting from real estate investments is equally about protecting yourself from risk, as it is about driving up income and value. Make sure to put the right legal structures in place to protect you from lawsuits, issues in passing on your legacy to your heirs, and to avoid appearing an easy victim to fraudsters.
Changing Real Estate Market Could Boost Demand For 1031 Exchanges
The changing real estate market is increasing the need to minimize capital gains taxes.
The need to limit exposure to capital gains tax, and increasing awareness of 1031 exchanges is likely bolstering demand for experts in this area. What factors are driving this trend, and where can property owners find the best help?
Rising Property Values
Nationally, real estate values have rebounded incredibly well over the last six years. Some areas now may be experiencing prices above their peaks of 2006. These rapid gains can also expose property owners to equally large capital gains taxes when they sell. 1031 exchanges offer the ability to defer those taxes, and continue to reinvest their proceeds.
Many believe that property prices and rents are peaking, or have surpassed their new peaks in some cities. Zillow points to places like San Francisco, CA as an example of cities where these numbers are on the decline. For investors and corporate real estate asset managers this indicates a smart time to sell, and restructure portfolios. This is especially true with current overall demand remaining strong, and interest rates poised to rise and cramp cap rates. Many should be shifting to areas with more room for growth during the next phase of the market.
New Financial Needs
We are also at a pivotal time in history as record numbers of boomers head into retirement, and we experience one of the largest transfers of inter-generational wealth ever. These life changes may demand different investment strategies and different types of assets. For example; investors may desire real estate assets which are more easily managed for themselves and heirs, and may prize passive income and wealth preservation over growth potential.
Connecting with 1031 Service Providers
With 1031s in hot demand, it is important for investors and property owners to seek out great quality service providers early. Look for established legal and tax professionals with good reputations, versus those just starting out to capitalize in the surge in business in this arena. Stat building a relationship early so that they are available to help you when you need it, and you won’t have to settle for subpar service from someone else.
When is the timing right for real estate investors to use 1031 exchanges to trade property and restructure their portfolios?
Most real estate owners and investors should now be aware of 1031 exchanges. Most are aware of their benefits. Yet, many are not sure if it fits their current plans – or when the right moment to use them is. To clear this up, here are six scenarios in which you should be using 1031s…
1. When Selling Property
If you’ll be selling a property, and you’ll be reinvesting at least some of the proceeds, you should definitely consider a 1031 exchange. You can still take out some cash if needed, but any gains you put into new properties or property improvements may be sheltered from taxes by using a 1031.
2. When Acquiring New Real Estate Assets
If you are buying a new investment property or business property and are likely to liquidate another property soon, put an exchange in place. A reverse 1031 exchange can give you the same tax benefits, even if you buy first, then sell an existing asset.
3. When an Asset Has Peaked
Once you have maximized the performance of a property, or it is topping out in value, then it can be wise to exit it, and find others with more room for growth. A 1031 will help preserve the maximum gains.
4. When the Market is about to Shift
When the market is showing signs that is may be about to see a decline in rents or property values, it can be smart to exit, and use an exchange service to put that capital into other markets which will better preserve capital, and diversify your portfolio.
5. When You Need to Minimize Taxes
When you are dealing with a higher than expected tax liability, or are afraid of incurring more taxes, then use 1031s to defer taxes and gain liquidity in investing.
6. When You Need a Performance Boost
When your wealth and passive income just isn’t growing fast enough then consider utilizing an exchange to acquire more profitable property assets. That may be simply switching properties, or moving into new destinations, or switching from one property type to another i.e. residential to commercial real estate, or office to mixed use.
Get a list of prime NYC properties for 1031 exchanges by emailing Contact@TheRatnerTeam.com or take advantage of a complimentary consultation with a 1031 exchange attorney to see if it is the right move for you by clicking here.
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1031 Exchanges For Renovating Real Estate
Can 1031 exchanges be used to defer taxes on gains made when renovating real estate?
Most real estate investors are familiar with the general concept of using 1031 exchanges to minimize tax liability, and maximized gains. However, far too few investors are using them. They can be very beneficial, but you’ve got to know the rules. Once you do, and you have a great qualified intermediary in your corner, it doesn’t have to be that complicated.
1031 Exchanges for Real Estate Investment
These tax deferring vehicles can be used for a wide range of real estate investments. That includes office buildings, multifamily properties, retail, mixed use properties, and even single family homes. Typically, this is for those buying and holding income producing properties, but not exclusively.
Using Capital Gains to Expand & Upgrade
When cashing out of one investment to restructure an investment property portfolio not all investors are aware that they can also use some of their proceeds to renovate and even rebuild new acquisitions. This is a huge advantage for those looking for undervalued assets and value add investment property opportunities. This may even be combined with financing.
1031 Exchanges and Flipping Real Estate
These tax tools are not really designed for the typical flip. That is those that are in the business of fixing and flipping repeatedly and rapidly. However, NYC real estate lawyer Timothy Allomong argues that there are circumstances in which is can fit. It is essential to provide a detailed record of transactions, and to be able to defend your position with the IRS. However, if you were to renovate a property, lease it, and receive an attractive offer, you may be able to sell and enjoy the protections of a 1031. If this sounds like any recent transactions you’ve been involved in, you may even be able to complete a reverse 1031 exchange now.
Don’t neglect the benefits a 1031 and similar tools can provide for a lack of asking. There are professionals ready and willing to help you navigate it, and make the most of your legacy.
Is it best to invest in real estate or purchase a new residence this year?
NYC is an amazing place to buy and own a residence or second home. It’s home to some of the best loved mansions, brownstones, and skyscraping condos of the world’s wealthiest and most famous. And there is always something new and grander to upgrade to. However, before buying that next property in the Big Apple, it may be worth asking if it is better to invest first.
There are many advantages and benefits of owing your own place in NYC. It’s yours. You don’t have to deal with hotels or shuffling your belongings. It’s likely that over the long run it can be a solid asset that retains, and even grows in value.
However, no matter how you look at it, a personal residence is not a pure investment. In truth, it is often a liability. Even without a mortgage, there are annual insurance, maintenance, and property taxes. Those aren’t cheap in NY. Keep it long enough, without trading up, and you may be able to offset some of the capital gains taxes you’ll owe when you resell.
In contrast a pure investment in NYC real estate can give you the same prestige and wealth preservation benefits. Even better, it could pay you rent every month, and your gains can be better protected by several tax saving vehicles; such as the 103 exchange.
This is something you must consider if you do not yet have adequate and reliable passive income streams coming in from real estate to cover your retirement. Do you have enough capital and passive income to cover your housing needs, potential medical, and plenty of surplus to take care of those you love, even if something happens and you must retire tomorrow? If not, invest first.
Not only can your cash flow and surplus created from real estate investments pay for all of your expenses, with relying on earned income, investing first can provide a great advantage in compounding your gains in the years you do not need to tap what they produce. Using a 1031 exchange you may continue to roll over gains and grow your real estate investment portfolio without shelling out for taxes.
It is true that low interest rates and a mixed market with unique opportunities for both home sellers and buyers make this an attractive year to upgrade to a new residence. If you already have a sizable real estate portfolio, then go for it. If not; consider investing first. Then buy your slice of the apple, in a more sustainable way.
Minimize your taxes and maximize your giving this season using 1031 exchanges.
It’s that time of year again. It’s the time when we are split between rushing to beat tax deadlines. It’s also the time when we are often even more inspired to give and help others. 1031 like-kind exchanges are great tools for helping us achieve more and more of this every year.
1031s are ideal for helping real estate investors defer taxes on their gains, and amplify their wealth and income growth. That helps to create additional financial surplus which can then be used to support philanthropic goals. These extra finances can be given annually at the holidays, can be used to boost year-round donations, or even to start a foundation.
This year we’ve seen some great and inspirational campaigns. Kent Clothier went and paid off layaway items for kids. Tony Robbins launched an Instagram campaign that gave 10 meals to those in need for every time a person took on his daily social media challenges. Why not come up with your own innovative way to spread the seasonal cheer too?
For many investors these like-kind exchanges provide strong double digit savings, which are then compounded as they grow, and your 1031s get bigger and broader. You may not personally need the extra finances or gains. You might already give big. And, yes, taxes are in a sense a form of charity. Though most would argue that they are a very inefficient method of giving, and far too many of those that aren’t really in need profit first. So, this is a great way to help make a difference.
Consider a 1031 exchange for your next NY property deal, and support those individuals, and those causes you care about most, and which will be most effective and efficient in helping. If you’ve just bought a property and are selling another you may still be able to take advantage of a 1031 exchange. The same is true if you are in contract to sell an existing investment, and hope to buy more units in the New Year.
1031 Exchanges: The Power Tool For Small Business Owners
The presidential election result looks sure to secure 1031 exchanges as an ongoing power tool for savvy small business owners.
Anti-tax break candidates Sanders and Clinton were feared to have followed Obama’s footsteps in working to cut back or eliminate the big tax benefits of 1031 like kind exchanges. According to the FEA (Federation of Exchange Accommodators) these like-kind exchanges are a vital tool for small businesses, and of course in turn the national economy and job market. Like Trump or not, it’s anticipated that he will preserve 1031s and perhaps even institute more income and real estate related tax breaks.
SME’s Can’t Ignore 1031s
1031 exchanges have long been regarded as one of the best tax saving tools for professional property investors. Vehicles like this are certainly used by large corporations as well. However, 1031s can be one of the most important tools for small business owners looking to survive and thrive too. In fact, it gives them a fairer playing field and edge.
A 1031 exchange can empower small business owners and entrepreneurs to scale up or diversify their locations without taking a big tax hit. That makes growth more feasible, and profitable. It allows them to expand to take advantage of market opportunities and the economies of scale, without having cash flow cramped or giving up valuable equity.
Real Estate 2020
They say hindsight is 20/20. Looking back we see many businesses who not only survived but thrived in tough financial times thanks to the strength of their real estate assets. Looking ahead, most predict we’ll enjoy a good four year run for real estate under the Trump administration, at least until 2020. This makes now the perfect time to leverage a 1031 and move up, especially while interest rates are low, and before property prices go up. A lot of corporate value and revenue, and security could come from these moves.
Utilizing these tax and investment tools doesn’t have to be limited to solely owner used property either. Look at Facebook and its forays into both corporate housing and affordable housing. Smart entrepreneurs and business owners could be advancing into multi-tenant properties, worker housing, and mixed use properties.
Consult and Strategize
If this sounds like an intelligent business and tax move for you or your business, get in touch today and consult a professional for customized advice and a plan for taking advantage of today’s opportunities, and the best moves for increasing future prosperity.
Many people are aware of 1031 exchanges. Not everyone has taken advantage of them. More might if they were are of this one little known benefit…
Awareness of the existence of 1031 exchanges is spreading. We know they are one of several tax saving or tax deferring vehicles available out there. Most know that they can be used to reduce tax liability on gains made in real estate. However, one of the biggest reasons that far too many fail to use 1031s is that they aren’t clear on how they can access their money. That’s an understandable and primary concern of any investment or investment structure. Of course many tax sheltering vehicles like self-directed IRAs or going offshore can restrict immediate, on-demand, and present access to capital and returns. Not every investor wants to lock up their money and returns until retirement.
Now, 1031 exchanges are more of a tool for the longer term investor. That may apply to exiting a property you’ve already held for a few years, or acquiring new investment properties now. However, they do offer more financial flexibility than most may realize. For example; you can choose to receive the proceeds of rents or a sale or reinvest them. You can choose a split of any percentage or dollar amount you like. On the sale of a piece of real estate you might decide to reinvest it all and gain the maximum tax protection. You could cash out all of the proceeds for other expenses. Or you could take 10%, 50%, or 70% of the cash to diversify or begin to gift to heirs, and reinvest the balance. You’ll pay the regular tax rates on the proceeds you take out, and enjoy deferring taxes on what is reinvested.
1031 exchanges are one of the smart money tools sophisticated investors use to slash tax liability, and accelerate their net worth. Here are three features they offer which you should know, and use.
1. The Power to Sell & Diversify
You don’t have to simultaneously ‘exchange’ properties to qualify for the tax benefits of a 1031. You do have to be aware of the number of days you have to identify potential acquisitions, and close on them.
Many confuse this tool as only being for trading one asset for another. It doesn’t have to be. Many real estate investors are waking up to find that they aren’t nearly diversified enough. You can use this opportunity to liquidate an existing asset, and diversify into multiple new properties which can ensure better protection and consistency in performance for your portfolio in the years to come.
2. Reverse 1031 Exchanges
This is one of the best, yet little known features 1031 exchanges offer. Some investors are concerned they simply can’t wait on a pending purchase to line up their 1031 exchange. Or they are wary about selling an asset without a new one being screened. You can actually work the process in reverse. You may purchase a new investment property in NYC, and still enjoy the tax break when you sell another existing asset or assets. Just make sure you are in touch with a 1031 exchange expert to ensure the paperwork on all transactions is executed correctly.
3. Buy & Improve
The funds from a sale don’t only have to be used for the acquisition cost of a new property. Taxes are deferred on any of the proceeds which you don’t actually receive in cash. So you may acquire properties and use funds to improve, add-on, or even redevelop, and still win.
What will you do with your exchange?
1031 Exchanges vs. Self-Directed IRAs
Self-directed retirement accounts and 1031 exchanges can both be powerful tax saving tools. Which is right for you?
Savvy investors must prioritize taxes today. The tax you owe or don’t makes all the difference in your total gains, and in the speed with which wealth and passive income can be built. Two of the power-tools for deferring and reducing tax liability for real estate investors are the 1031 exchange and the self-directed IRA (SDIRA). So how do they really compare?
1031 like-kind exchanges enable real estate investors to defer taxes providing they reinvest in another like-kind investment property. In theory taxes on the capital gains from real estate sales can be continuously deferred until the investor can eliminate the liability with other write-offs, or they fall into a much lower tax bracket.
This term can apply to a variety of self-directed retirement accounts including self-directed 401ks, real estate IRAs, and IRA LLCs of checkbook IRAs. These vehicles allow individuals to reduce their taxable annual income based on the deductions they make to a qualifying account. Most of the income and capital gains achieved within the IRA are then tax deferred or tax free.
1031s vs. SDIRAs
While they may appear similar, there are a couple of notable differences between these two tools. 1031s require consistent investment in order to preserve the tax savings. They also allow investors to choose whether to receive some or all cash when sales occur. Proceeds taken as cash may be taxed, but they are not subject to the big penalties which can apply to early withdrawals from a retirement account. SDIRAs appear to have more flexibility in choice of investment. For example; you may sell a multifamily apartment building, and use the proceeds to buy precious metals or stock in a startup venture, without triggering additional taxes. The downside here can be that when financing is used in tandem with an IRA there can be UDFI taxes due. That may be negated with a 1031.
Both have their advantages. And in this case study New Direction IRA actually argues that they could be best used together to save even more.
Which will you use?