[Part 4 of 4]
By this stage of the game, many investors who bought locally and opted to manage the property themselves are desperate to get out.
Many have been hammered by negative cash-flow, unruly tenants, and unexpected repairs. Several are convinced that real estate investing doesn’t work and are willing to sell at a steep discount to free themselves from their bondage.
If residential real estate is your game, then these are the motivated sellers you want to buy from. Many of these will get one last kick in the pants on their way out of the real estate investing door. When you sell without a plan and without thinking about taxes, taxes will inevitably follow.
Tax Advantages And Depreciation
Real estate is one of the most tax-advantaged investments available. For this reason, most of the Forbes 400 wealthiest people have either made or retain their wealth in real estate.
Depreciation is the cornerstone of a successful real estate investing strategy. It is not uncommon for depreciation to allow the successful investor to legally make money while claiming a loss on his or her return.
The magic of depreciation cannot be understated and is the fuel that accelerates the successful investor to financial freedom and an early retirement from medicine.
However, when you sell your property without a plan, the government will require you to recapture that depreciation and tax you on it. Despite this, there are ways to legally get around this requirement.
A Starker 1031 exchange is one such vehicle for deferring tax owed from the sale of real estate. With this, one can do a like-kind exchange and buy another property while deferring the tax owed.
Liquidation For Successful Operations
Another liquidation strategy, through successful operations, that is tax-free is a refinance. Exceptional owners and asset managers know how to increase rents, decrease expenses, and maximize retention to force appreciation of commercial real estate.
After a few years of superior operations coupled with principal reduction, the loan-to-value of the property can drift down significantly to the point where it makes financial sense to refinance the property.
In this regard, the investor can harvest some of their equity tax-free and go out and buy a second performing property while maintaining their interest in the first property.
Over time, one property can become two and two properties can become four without putting any new capital in.
To Sum It All Up
In summary of this four part blog series, “The Four Stages of Real Estate Investing”
- Raising Real Estate Capital
- Making Real Estate Acquisitions
- Real Estate Operations
- Real Estate Liquidation
Each stage has its opportunities and it’s pitfalls for the real estate investor.
If you are an active investor, take the time to master these stages and you can be rewarded handsomely for doing so.
If on the other hand, you do not have the time, energy, or inclination to become a real estate professional, don’t fret. You too can take advantage of the greatest wealth building asset class the world has ever known.
- Consider diversifying some of your portfolio into real estate with other like-minded physicians and investors.
- Leverage the experts knowledge of the best markets and sub-markets as well as the best properties to buy in those markets.
- Let those same experts manage your properties, accelerate your returns, and show you how to save on taxes such that you can become financially free sooner than you ever thought possible.
Its Your Wealth and Your Retirement, Why not Make it Abundant?
To your Financial Freedom,
Dennis Bethel, M.D.