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.