Property owners, do you share any of these goals?
- Liberating yourself from the drudgery and liability of owning rental property
- Potentially increasing your annual income
- Diversifying your real estate holdings
- Making these changes with minimal (or no) tax consequences
If so, we invite you follow these five steps toward “retirement” from being a landlord. We are here to guide you with each step:
1. Give yourself an honest gut-check on being a landlord.
States like California and Oregon declared war on landlords in 2019 and the situation has only worsened during the pandemic. Smaller rental properties are particularly vulnerable, as one defaulting tenant can have a significant impact on current cash flow. Regulatory restrictions, potential legal liability, looming tax increases and economic uncertainty—not to mention day-to-day management hassles and deferred maintenance—may no longer make active ownership an appealing option. Ask yourself, “Do I really want to continue operating this property?”
2. Get an objective analysis of your rental investment property.
For most west-coast owners, property values have outpaced rental growth over the last ten years. As a result, yields on current equity have gradually decreased, often triggering the question, “Why should I continue the risk and hassle of owning an asset that produces such a low yield?” At 1031 Capital Solutions, we can help you reach an informed answer, by examining your property through the same lens as any other financial investment.
3. Open your mind to out-of-area alternatives.
If the COVID-19 pandemic has taught us anything, it’s that our society now has the technology to function remotely. All of the information you need to make educated investment decisions is at your fingertips. And it is not really necessary to be within driving distance of your rental properties, as much as you may like having them nearby. Moreover, broadening your horizons may create more opportunity to diversify across geography, demographics and asset types, perhaps in municipalities or states that may be more landlord-friendly than your current location.
4. Choose a Captain for your Deal Team.
Before you execute a plan to exchange your investment property, it is prudent to have your entire Deal Team in place: tax professional, listing agent, exchange accommodator and real estate investment adviser. Depending on your circumstances, advice from your attorney may also be necessary. At 1031 Capital Solutions, we are happy to be the Captain of your Deal Team.
5. Exchange your headache for a more suitable replacement.
If your situation warrants a tax-deferred exchange under IRC Sec. 1031, we can assist you with the final step in the process, namely replacing your current property with one or more passive investments. This requires an understanding of several suitability factors, including your prior investment experience, personal property preferences, risk tolerance, debt replacement requirements, liquidity needs, income requirements and time horizon.
6. (Optional) Read our book, How to Retire from Being a Landlord
For more information, please contact 1031 Capital Solutions at (800) 445-5908 or visit our website, 1031CapitalSolutions.com.
This information is for educational purposes only and does not constitute direct investment advice or a direct offer to buy or sell an investment, and is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Because investor situations and objectives vary, this information is not intended to indicate suitability for any particular investor. The views of this material are those solely of the author and do not necessarily represent the views of their affiliates.
Investing in real estate and 1031 exchange replacement properties may involve significant risks. These risks include, but are not limited to, lack of liquidity, limited transferability, conflicts of interest, loss of entire investment principal, declining market values, tenant vacancies, and real estate fluctuations based upon a number of factors, which may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover. Investors should also understand all fees associated with a particular investment and how those fees could affect the overall performance of the investment.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). 1031 Capital Solutions is independent of CIS, CAM and CIA.