With the new year comes both new challenges and new opportunities for your investment properties. The one thing we know for sure is that nothing ever stays the same. While we never know what the new year will bring, we do know it will be different from the last. Over the past year, the changes felt by investment property owners in Washington have been significant – from a rapidly appreciating market, unprecedented levels of new development and relentless regulatory pressure, just to name a few. Meanwhile, an owner’s objectives also change as they progress through life’s chapters. Focus often shifts toward preservation of capital (i.e. not weathering another major market correction), freeing up more time and enhancing current income. Whatever chapter you find yourself in, we encourage you to use the start of 2020 to consider what your real estate investment objectives are going forward.
Determining objectives is a process we walk through with our clients regularly. It requires taking a “big picture” approach and considering not only your specific properties, but larger considerations such as estate planning, financial planning, and risk tolerance. Once objectives are determined, strategies can be proposed to best position investment property owners to accomplish their goals and realize their objectives.
There is an abundance of strategies available to investment property owners – perhaps more than those available to owners of any other asset class (e.g. refinancing, third party management, sales, exchanges, trust structures, etc.). Determining which strategy is best can be complicated. Additionally, change can feel daunting, especially when going at it alone. As a result, many investment property owners end up defaulting to the status quo even though there is a gap between their financial / lifestyle objectives and current properties owned.
Five things to consider when determining investment property objectives
Determining objectives is no simple task. To help you work through this process, we developed a simple framework called “T.R.R.I.P.” that can be reviewed at the beginning of every year to see whether your objectives have shifted over the past 12 months. While not exhaustive, asking yourself the following questions and discussing these “thought points” with your spouse, family and business partners (if applicable) will help you determine if your current properties are best positioning you and your family for long-term success.
- How much of the income from our properties is sheltered by depreciation?
- What would our tax liability be if we were to sell?
- What direction do we anticipate landlord laws to go in the coming year?
- Are there proposed state and local regulations outside of landlord laws we are concerned about?
- Has our tolerance for risk changed from last year?
- How do we view investment risk? Are we feeling overly concentrated in one property type and/or in one market?
- How do we view liability risk (e.g. tenant risk, lawsuit risk, etc.) associated with our current properties?
- How much income do we currently earn and how much would we like to earn annually?
- Do we anticipate our income needs changing in the coming years?
- How do we view the tradeoff between income and free time?
- Do our properties afford us sufficient personal time to travel, spend time with family, and enjoy life?
- Are there certain parts of property ownership we enjoy (e.g. acquisitions and/or value-add) and others we do not (e.g. routine management and / or maintenance)?
If you feel there is a gap between the current investment property you own and your objectives, give us a call at 206-686-2211 or email us at email@example.com to schedule an informal, complimentary consultation to discuss your investment property and how we can help. Consultations can be done over the phone or at our office located in Mercer Island, WA.
Here’s to a prosperous, strategic, and successful 2020!
Roger W. Bowlin – Founding Partner of Real Estate Transition Solutions, provides exit strategy analysis, execution, income and equity replacement options for investment property owners. If you have questions relating to your investment property ownership, please email firstname.lastname@example.org or call (206) 686-2211.
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee profits or guarantee protection against losses. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material 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. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Real Estate Transition Solutions is independent of CIS and CAM.