Welcome to the realestateexitstrategies.com blog. Our goal is to provide you with objective information you can use as you consider an exit or transition strategy for your appreciated real estate.
Why are we having this discussion?
Obviously it is because many property owners have decided now just might be the time to consider selling their real estate. Some are motivated out of fear by talk of “speculative bubbles”, or just figure that with interest rates climbing real estate in general may have achieved maximum near-term value. For some, there are other motivators at work including: looking for ways to try to increase return on equity and cash flow, reducing risk, and overall lifestyle simplification.
No matter how you might have gotten there, if an assessment of your real estate investment indicates it may be time to consider making a move this obviously begs many important questions such as:
- With capital gains rate an historical low, should you pay taxes on a sale?
- Or should you be considering alternative approaches that could allow you to defer, spread, or even eliminate taxes?
- What are some reinvestment alternatives that can significantly increase your returns, simplify your life, and reduce your portfolio risk?
- Are there ways to stay in real estate yet diversify into other areas of the country where real estate appreciation to date has been a little less crazy but has some interesting upside potential?
- Could you change the style of real estate investment maybe to more institutional types of investments such as office buildings, business parks, retail centers, assisted living facilities, hotels, etc?
- Could you do all this while eliminating eliminates many of the worries associated with building ownership, including the “Four Ts”: tenants, trash, turnover and toilets?
As just this shortened list of questions highlight, developing the right real estate exit strategy is quickly becoming the most pressing challenges of real estate ownership.
So, how do you sort your way through these issues. Not surprisingly, it involves the common elements of any investment consideration: engaging in planning, becoming an educated consumer, and surrounding yourself with capable and experienced professionals.
Planning
Like many individuals in your situation, you have probably heard about some potential real estate exit strategies and are tempted to jump straight away into discussions of tax techniques and reinvestment options. Often times this is done in the context of throwing a product or a potential approach at the generic real estate situation. This is not planning. Worse, it is often a recipe for failure and disappointment.
On the other hand, a planned exit strategy begins with a holistic consideration of the larger issues in your life such as:
- What are your ongoing living needs and estate considerations?
- Are you still building wealth, or are you looking for a way access and protect your wealth?
Your real estate investments are a means of facilitating your reaching your specific and unique objectives, not a disconnected set of actions and decisions. As such, you should think hard and long about your hopes, dreams, and aspirations. As you become clear on what your personal and family goals are, then, and only then, are you ready to “map out” how various strategies can help you get there.
Education
While most investors have become reasonably well educated on the benefits of owning income property, it is quite the opposite situation with investors who are educated on the best way to exit their real estate investment.
Indeed, it is the rarity of investor who has developed an “end-game” strategy that plans ahead for the timely disposition of assets under the most favorable circumstances. Typical the strategy has been that investors have repositioned their assets over the years by exchanging into larger properties and have brought their old basis into the new property until the depreciation benefits have evaporated. As this has progressed cash flows are now exposed to a bigger tax bite, and refinancing has placed the mortgage over the basis, creating a taxable event for any subsequent exchanges. In many cases the investor has hit a cul-de-sac on the road to equity growth.
Volumes have been written on how to buy and manage income property but effective options for the investor who wants to cash out are scarce. The classic strategy of tax avoidance through a stepped-up basis on death is not as attractive to baby boomers and today’s seniors that are living and staying active longer. Also, the Tax Relief Reconciliation Act of 2001 will phase out the stepped-up basis by the year 2010 as the estate tax is gradually phased out.
The key is that investors need to become educated consumers with regards to the options available. And that takes us to our final point: building your real estate exit team.
Building Your Exit Team
Could you research all the appropriate exit strategies and implement your own solution? Sure. There are do it yourself options across the board these days from do it yourself divorce to do it yourself bankruptcy. But as in almost all such settings, it is probably a much better idea to surround yourself with an experienced and knowledgeable team.
The essential list of core team members includes key real estate, financial planning, and transaction support professionals who can bring you invaluable insights and actionable solutions to support you in your planning and decision-making process. This team, along with legal and accounting professionals, can also help you execute your specific and unique plan; ensuring each component is coordinated and integrated.
Want more information?
Check out www.GotExit.net, a provider of educational seminars on real estate, business, and other transition strategies.
