On previous post about real estate investment in Oklahoma City, I have dealt with how to get started, choosing a location, return on investment, property management, and what to do about mortgages. Today the topic is the exit strategy. First it depends upon why you bought the property in the first place, and how old were you when you decide to dispose of it. My personal opinion is residential real estate investing especially in a long term market like Oklahoma City is for a lifetime, but lets examine a few reasons for some type of liquidation.
I have to sell. Into each life a little rain must fall. Even though you planned to keep the home, something has gone wrong in your life. Normally this means that the price is going to be so attractive that profit is not an issue, therefore capital gains won't probably be either. Asdo for a previous post I mentioned that passive loss goes on forever so this may offset any profits you may have had. Also it is important to know that a short sale is better than a foreclosure. For an investor this typically prohibits you from getting a Fannie mae loan for 7 years. With a short sale, only 2 years.
I need to pay for something. If you are holding an Oklahoma City investment home for a long time, say at least 15 years, you have been able to pay it down considerably. Rather than liquidate you might consider a refinance instead and hold onto the property especially if the rent to payment ratio is good.
1031 Tax Deferred Exchange. Alway the best option becasue number one, it means you bought well and the property has appreciated. Second you get to possible buy two or three properties from the proceeds. Even better is rather than paying the taxes on sale, the full amount is used for the next purchase(s), and you can keep deferring for your lifetime. In my analysis, this ups your annualized returns to at least 5% per year.
What did you buy it for in the first place? If you bought homes in your 20's instead of your 50's, you may have a different attitide toward exiting at all, and maybe neither group would want to sell at any time. In the case of being older, you may want to pay if off quicker than the young folks becasue it is your supplemental nretirement income. Afterall, a paid for property is pure cash flow, but you must consider whether you want to borrow agianst them for more property if you need it to hit your retirement income requirements/ If you are young it could be your entry into early retirement, and why liquidate? Rental property bought at the right place at the right price is yours to control, and it just keeps on giving. Raidning your 401K is based on dying whenyour only have one cent left. That is pretty impossible to plan for. I guess in that case death may be the ultimate exit strategy, then it is your heirs problem or blessing.
For more information email me at joe@joepryor.com or to check Oklahoma City area real estate go to www.virtualrealestateteam.com.
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