15 Tax Deductions for Landlords During Tax Season

When tax season approaches, don't forget to look for money-save tax deductions for landlords. You might be eligible for deducting related expenses if you rent out the property. Landlords can claim tax deductions, including mortgage and interest payments, insurance premiums, maintenance and repairs, administrative costs and supplies, eviction-related fees, depreciation and losses, travel, professional services, and more.

Remember that this material is intended to provide helpful information and is not to be relied upon to make decisions, nor is this material intended to be construed as legal advice. You are encouraged to consult your legal counsel for advice on your business operations and responsibilities under applicable law. Trademarks used in this material are the property of their respective owners, and no affiliation or endorsement is implied. Any game is challenging to win if you don't know the rules. Being a landlord is no different. Often, juggling tenant needs, paying insurance premiums and mortgages on time, and squaring up at tax season can feel like a chess game where the pieces keep changing. While the objective is a successful rental business, that's not always possible. Given that 36% of rental companies fail in the first five years, according to AdvisorSmith, it's crucial to do everything you can to maximize profits and come out triumphant. One way to keep more of what you earn is to minimize expenses. Most landlords already understand the cost-saving importance of knowing how to set the correct rental rate and reducing the risk of evictions with thorough renter background checks through a high-quality service like SmartMove. However, fewer landlords know the range of tax breaks available to property owners and managers—opportunities that could help you save big. With many renters and landlords recovering after a financially tumultuous few years, it's more important than ever to help protect your investment. Below, you'll find 15 deductions that could help you during tax season. While some of these tax breaks apply to all homeowners, many are unique to rental property. Make sure to check with your tax professional or CPA to determine whether any specific tax deduction applies to you and make the most out of your return. As you work on this year's tax returns, keep the following deductions in mind:  

1. LONG-DISTANCE TRAVEL

If you have to travel long distances to check on your property, Moolanomy reports, you can deduct the cost of your travel expenses. Examples of deductible expenses include car mileage, airfare, or hotel costs.

2. MORTGAGE INTEREST

You probably have a mortgage if you didn't purchase your rental property outright. If you do, you're paying interest to a bank. SmartAsset says landlords can deduct their mortgage interest as a rental expense. This well-known rental property tax deduction applies to all homeowners. Still, landlords need to use it because it's usually the most significant deduction you can claim.

3. PERSONAL PROPERTY TAXES

Your local government may require you to pay personal property taxes on equipment and furniture used for business purposes based on the property's value. Most landlords know they can depreciate their private property, but did you know that you can decline personal items used in and for your rental business ?fastfasterManagement explains that with the Modified Accelerated Cost Recovery System, you may save more money by fully depreciating personal property inside the rental unit over a shorter period. For example, appliances, carpeting, and furniture can be depreciated over five years. Other items, like fences and driveways, can be depreciated at a 15-year rate. You can check which asset class your property falls into on the IRS website.  

4. REPAIRS

The IRS splits repairs into two types:

1. Improvements to the property (which increase the value) or
2. Returning things to their original condition (maintenance)

More oversized Pockets notes that while improvements must be capitalized and deductions taken as depreciation over time, repairs and maintenance costs can be expensed in a year. Nolo.com offers the helpful BAR acronym to help you decide if your repairs are maintaining the property or could be considered improvements:

• Betterment. Does the change fix a defect in the property that existed before you bought it? Does it physically enlarge or enhance the property in any way?
• Adaptation. Will you use the property in a new or different way than you originally intended when you purchased the property?
• Does the change rebuild the property to a like-new condition? Have you already taken a loss for the damage?

If you can answer yes to the above questions or your repair falls into any of these categories, it would likely be considered an improvement by the IRS, which needs to be depreciated.

5. LOCAL TRAVEL

Many landlords like to check in on their tenants and property routinely. You might also need to handle maintenance, repairs, or improvements on-site. If you use your vehicle to make the trip, you can deduct the cost of travel using one of two different methods:

1. Actual expenses or
2. IRS standard mileage rate.

FindLaw.com says there’s been a caveat you're using the IRS standard method. To qualify, a landlord must use this method during the first year the vehicle was used in rental business activity. The actual expense method allows you to deduct the actual vehicle expenses and depreciation. According to the IRS, the local travel deduction can include gas, oil, lease payments, licenses and fees, repairs, tolls, and parking. Calculate your deduction both ways to see which method benefits you most.

6. LEGAL FEES FOR AN EVICTION

Often landlord's worst nightmare, eviction proceedings, are highly stressful and can bankrupt small rental businesses. If the worst happens, anyou'rere forced to evict or take legal action against a tenant; Sapling says you can deduct court fees and attorney costs. However, even if some of those expenses can be deducted, such a financial hit could decimate your profits. A SmartMove estimated that total eviction-related expenditures averaged $3,500. How would your business fair with such hefty fees In addition to monetary cost, there is the intense worry of an ongoing legal battle and the pressure of not knowing what could come next. It’s good to save money by claiming landlord tax deductionsit's’s better to prevent evictions in the first place by thoroughly and consistently screening your tenants beforthey'rere allowed to move in. Bolster your tenant screening process with detailed, near-instant background checks that include criminal checks, renter credit reports, and eviction history with SmartMove. An in-depth look at a rental applicant’s background and track record can help you make more informed, timely screening decisions.  

7. HOME OFFICE

Using a dedicated space in your home to conduct rental business is a deductible expense–even if it’s not a whole room. HomeGuides points out that a deductible space must be a d exclusively for rental activity ad used primary meeting place for clients and customers. Then Balance also reminds you that any equipment must be used exclusively for business. For instance, your work computshouldn'tn’t be used to play games or for other personal reasons. TheYoun calculates the business portion of your house as an expense in several ways to find the most significant deduction. According to the Balance, you can:

• Calculate yospace'se’s square footage divided by the square footage of your entire house. All the rooms in your home are roughly the same size; divide the number of rooms your business space encompassed by the total number of rooms in the house.
• Use a prescribed rate multiplied by the allowable square footage used in the home. For 2022, the prescribed rate is $5 per square foot with a maximum of 300 square feet, according to the IRS.

Note that you can deduct a portion of your home repairs if they partially affect your office and the total price of the repair if it only affects your office. However, you cannot use these deductions if you have an outside office or rent the space to your employer.

8. WAGES FOR EMPLOYEES AND INDEPENDENT CONTRACTORS

If you hire a property manager or grounds maintenance worker, you can deduct their wages as a rental business expense. This also holds for independent contractors like carpenters or electricians. According to Nolo, one of the benefits of hiring independent contractors is that ydon'tn’t have to withhold federal taxes out of their paycheck or pay one-half of tworker'sr’s Social Security and Medicare taxes. However, you do need to file IRS Form 1099-MISC if you spend over $600 during the year. Adon'tn’t forget employee meals and entertainment expenses. Turbo Tax reminds landlords that events like holiday parties or summer outings for your staff are 100% deductible. If you incur a cost while doing business with a potential client or business associate, you can deduct 50% of the total.

9. CASUALTY LOSSES

If anything happens to your property due to an unexpected event like a natural disaster or fire, you can claim a total or partial property loss on your tax return. However, as Nolo points out, you can only claim losses to the extent that tharen'tn’t covered by insurance. If you have insurance, you must reduce the amount of your claimed casualty loss by any insurance recovery you receive (or expect to receive if you haven’t been paid yet). Losses that are fully covered by insurance are not deductible.  

10. DEPRECIATION

Depreciation is a deduction for property and items you have owned for over one year. The cost of qualifying items is deducted in small amounts over several years. For example, rental buildings are depreciated over 27.5 years. This means that you can remove about 1/27 of your rental property annually. SF Gate points out that depth IRS requires depreciation depreciation cladon'ton’t just to save you money and keep you out of legal hot water. Also, if you sell the property for more than the depreciated value, the IRS may charge you a 25% recapture tax, whether or not you claimed depreciation. It makes more sense to claim the depreciation than to eventually pay taxes on a benefit you never received.

11. INSURANCE

According to Steadily, the premiums you pay for almost any insurance on your rental are deductible. This includes fire, theft, and flood insurance for your rental property, plus landlord liability insurance. If you have employees, you can also deduct the cost of their health workers' compensation insurance.

12. CAPITAL EXPENSES

Nolo offers helpful information for understanding how landlords can deduct long-term assets; here are the basics. Regarding tax rules, two types of expenses incurred in a rental property business: current and capital.

1. Capital expenses are defined as purchases expected to last more than one year and generate revenue in the future. This might include equipment, land, or vehicles; remember; these are not the only capital expenses. The IRS treats such purchases as investments and must be deducted (or capitalized) over several years.
2. Current expenses are the day-to-day operational expenses that keep your business running, such as rent and utilities. You can deduct 100% of current expenses from your gross rental income in the year they are incurred.

 

13. PROFESSIONAL SERVICES

In addition to the legal services mentioned above, other professional assistance can also be deducted. Consulting a tax professional is not only advisable but also a deductible expense. According to Hanson, CPAs, attorneys, and accountants can be deducted from your taxes as long as the reason you are hiring them is related to your rental business. Since IRS regulations are regularly updated or changed, hiring an accountant to file your taxes can keep you from overlooking any deductions. If you do ide to handle your taxes yourself, the same conclusion applies if you use tax preparation software.

14. OPERATING EXPENSES

Many items you purchase for your rental property throughout the year can be classified as operating expenses and deducted in the year you purchase them. The IRS website defines these expenses" as “the ordinary and necessary expenses for managing, conserving, and maintaining your rental pro" party.” Reasonable expenses that are generally accepted as necessary for a rental business might include the following:

• Advertising
• Maintenance
• Utilities
• Insurance

15. MAINTENANCE

You might be tempted to put maintenance in the repairs category, but the ongoing upkeep of your propdoesn'tesn’t necessitate something being broken. For example, landscaping and pool cleaning is done regularly, even with no significant issues. You can also deduct any tools needed for cleaning or upkeep, such as lawnmowers, weed eaters, or paint sprayers. In some cases, it may be necessary to depreciate these tools, so check with a tax professional if you have any doubts. The same holds for cleaning supplies and janitorial items. According to HOA Sites, you can even deduct Homeowner Association fees as a rental expense. Help Lower Costs with Strategic Deductions and SmartMove Tenant Background Checks As a landlord, the complex rental property tax deduction rules can often work in your favor. However, all your strategic hard work at tax time is meaningless if you sacrifice your profits to debilitating eviction proceedings. Help even the odds with in-depth tenant screening through SmartMove. Created for independent landlords with only occasional screening, neSmartMove'sove’s thorough tenant background checks can help you save money by helping you make more confident leasing decisions––and the fee you pay for screening is often tax deductible. Alternatively, you can choose your rental applicant pay and not worry about deducting it while working with finances; details always matter. One of the most critical and essential screening tasks a landlord should complete is ensuring applicants make enough income to afford the rent. The industry standard for applicant income is three times gross monthly income compared to rent. Example: If the rent costs $1,000 monthly, the applicant should make $3,000. SmartMove can help you ensure that your application makes enough to satisfy your rental criteria for income. An Income Insights report allows you to analyze applicant income in minutes. It compares your reapplicant'sant’s self-reported income to actual financial data provided by TransUnion—a central credit agency—and recommends when you should request more income verification documentation. Ultimately, Income Insights helps landlords save time and effort and lower the risk of renter non-payment issues. Regarding your livelihood, you need to research and use information that can help you make informed choices. With every SmartMove screening package, you get a proprietary renter credit score, ResidentScore. Unlike other scoring modTransUnion'sion's ResidentScore is powered by a sophisticated analysis of more than 500,000 actual resident records, it’s proven to be 15% better than traditional credit scores to predict eviction risk. This apparent advantage gives you a leg up when evaluating applicants. In the game of rental property management, do's and don't, don’t let yourself get blocked into a corner. Increase your chance of success with thorough tenant screening through SmartMove. This content, except as otherwise indicated or stated on this site, is the property of TransUnion Rental Screening Solutions, Inc. This content is for educational purposes and convenience only. Trademarks used are the property of their respective owners, and no endorsement or affiliation is implied. The information presented in this content" is “s is” without warranties of any kind, specifically is not represented to be complete, does not constitute legal advice, and is subject to change without notice. You are encouraged to check these terms occasionally for changes, and by accessing this site, you agree to these terms and all times listed. Laws and regulations may vary by state and locality. Consult your counsel if you have legal questions about your rental property practices and processes.  

Source: 15 Tax Deductions for Landlords During Tax Season

https://www.creconsult.net/market-trends/15-tax-deductions-for-landlords-during-tax-season-2/

Commercial Rate Snapshot April 10th 2023

These are the average available rates from eXp Commercial's Capital Partner CommLoan database of 700+ commercial lenders as of 4/10/2023 and are provided for comparison purposes only.

*Actual rates are dependent on property and sponsor.

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Ultra Low Interest Rates Will Be Back

Inflation was a blip, and long-term ultra-low interest rates will return — but only because world economic growth will be anemic.

That is the not entirely upbeat conclusion of the latest IMF World Economic Outlook, which portrays inflation as a blip, not a global reset.

The document looks at growth potential, inflation, and interest rates and describes a rocky road ahead. It does not suggest a fall in interest rates is likely to come instantly, nor is it inevitable.

However, the claim that inflation will shortly return to 'normal' pre-pandemic levels comes as Oxford Economics warned that this might not be true for the construction sector.

Analysts said persistently high prices could blow a $2T hole in the global construction business.

Here are the five big takeaways from today's assessments.

1. It Was A Blip All Along

The IMF's analysis aligns with those who argue that the current surge in inflation is almost entirely linked to the coronavirus pandemic and the distortions in supply and demand it created.

It does not agree with those who think that higher inflation is a consequence of newly fractured globalized supply chains — which would make higher interest rates the new normal.

Instead, the IMF analysis suggested that overall, the strengths and weakness of various economies, and the way capital flows between them, meant “global forces matter, but that their net effect on the natural [interest] rate has been relatively modest," it explained in a blog.

IMF analysts said things could get more challenging: If governments borrow too much, decarbonization turns out to be very expensive and pushes energy prices through the roof, or something hinders globalization (wars, for instance), none of that would be good.

However, “these scenarios would have only limited effects on the natural [interest] rate but a combination, especially of the first and third scenarios, could have a significant impact in the long run.”

2. Stagflation Is A Real Risk

The risk is low growth, not high inflation and interest rates.

Poor productivity and unhelpful demographics in major Western economies will drag down inflation and, in its wake, take interest rates back down to pre-pandemic “natural” levels. So far, so good.

Yet recovery into growth is not assured, and too much low productivity and low inflation can be harmful: That is stagflation, a word not mentioned by the analysts but a scenario they are describing.

"Advanced economies are expected to see an especially pronounced growth slowdown from 2.7% in 2022 to 1.3% in 2023," IMF Chief Economist Pierre-Olivier Gourinchas said. "Global headline inflation is set to fall from 8.7% in 2022 to 7% in 2023 on lower commodity prices, but underlying core inflation is proving to be stickier."

Importantly, this outlook assumes that recent financial stresses remain contained.

"Risks are heavily tilted to the downside; they have risen with the recent financial turmoil," he added.

3. Quantitative Easing Isn't Over Yet

If major developed economies struggle to turn low-inflation stability into low-inflation growth, policymakers will probably feel forced to intervene.

In those circumstances, more quantitative easing or other balance sheet adjustments might be the policy option chosen by central bankers. Given that central banks only just began quantitative tightening (selling the government bonds bought since the Great Financial Crisis of 2008 and raising interest rates), this would be serious and may have unpredictable consequences.

More QE would typically mean asset prices — including real estate — get a boost. But abnormal asset price growth also locks in a widening differential between the prices at which assets are trading and the underlying economy upon which they depend. And that can lead to valuation crashes and misallocating resources that helped turn the current inflation spike into a dangerous shakeout for some property sectors.

4. Construction Inflation Is Different In Bad Ways

While policymakers in government and central banks tread an excellent line between inflation on the one hand and suffocating the economy on the other, the real estate sector has to navigate a more challenging route, as shown by Oxford Economics analysis, also published on Tuesday.

While Oxford Economics expects core inflation to come down steadily, thanks to easing supply chain pressures and interest rates just high enough to choke off the pressure, “there are risks that high inflation could be stickier than we expect,” it said. And the place where it will be stickiest is in the construction sector.

“Given that the service sector accounts for more than two-thirds of economic activity in most developed economies, there is only so much that easing supply chain bottlenecks can do to bring down broader inflation,” analysts said. “We expect construction materials prices to be at least 15% higher than pre-pandemic levels when prices bottom out.”

If a wage-price spiral gets going, all bets are off for the construction sector, which is always more vulnerable to tighter lending controls and higher interest rates. If that happens, the industry will tumble into a $2T hole of foregone construction activity in 2027.

5. Long Story Short

“Overall, our analysis suggests that recent increases in real interest rates are likely to be temporary," the IMF report's authors said to sum things up. "When inflation is under control, advanced economies’ central banks will likely ease monetary policy and bring real interest rates back towards pre-pandemic levels. How close to those levels will depend on whether alternative scenarios involving persistently higher government debt and deficits or financial fragmentation materialize.”

Source: Ultra Low Interest Rates Will Be Back

https://www.creconsult.net/market-trends/ultra-low-interest-rates-will-be-back/

More Cities Giving Away Money For Office-To-Resi Projects As Threat Of Obsolescence Grows

Falling tax revenue. Aging downtowns losing their vitality. Record office vacancy. A housing crisis. One strategy could tackle all of these problems in one fell swoop: a wave of office-to-residential conversions.

Developers are interested, and the opportunities are there, with hundreds of millions of square feet of office identified throughout the country as potentially feasible for conversion. But the cost to do these projects is too often prohibitive, and completed projects have been limited.

Cities and states are starting to do something about it. Incentives aimed at encouraging office-to-residential conversions are gaining traction.

From Chicago, which will make at least $197M in tax increment financing dollars available to developers willing to convert old buildings to multifamily units, to a $400M program in California and a $2.5M tax abatement scheme in Washington, D.C., meant to achieve the same end, cities and states in the U.S. and beyond have introduced programs at the behest of developers who say the math doesn’t work without public funds.

“I don’t think you can get conversions done without incentives,” said Paul Dougherty, president and chief investment officer at PRP Real Estate Investment Management in Washington, D.C. “The numbers just don’t pencil right now.”

The pace of office conversions accelerated across the U.S. last year, according to CBRE, but the process has only taken a minuscule bite out of supply thus far. The 218 conversions completed across the U.S. from 2016 to 2021 combined with the 217 projects in the pipeline in 2022 amount to about 2% of the national office stock. And CBRE reported many of the pipeline projects would “fall prey to financing shortfalls or regulatory issues” and never see the light of day.

Industry groups like NAIOP are lobbying Congress to provide financial support for conversions on a national level as already costly projects become more prohibitive amid interest rate spikes and the evaporation of liquidity from capital markets.

In the meantime, a number of metros have taken matters into their own hands.

Pervasive commercial vacancies in Chicago’s Loop prompted Mayor Lori Lightfoot to roll out the city’s LaSalle Street Reimagined initiative, which offers developers TIF dollars and other incentives to repurpose the 5M SF of vacant commercial space in the office-heavy LaSalle Street corridor.

Washington, D.C., officials in February launched a program that abates 20 years of property taxes for owners who add at least 10 housing units and change a building’s use in a designated part of downtown. At least 15% of those units must be set aside as affordable.

On the West Coast, the state of California set aside $400M in incentives to convert office buildings to affordable housing. As of early March, more than 50 developers and investors had applied for the funding, according to CoStar.

Even smaller-population cities like Long Beach, California, the nation's 42nd-most-populous metro, have looked at tax incentives to convert office space into housing.

Conversion projects tend to kill two birds with one stone. For cities, the addition of residential units brings foot traffic downtown while also removing underperforming office stock from property tax rolls.

But despite the public sector’s best intentions, the amount of office stock fit for conversions remains low. A tool developed by Gensler measured the viability of conversions at more than 400 office buildings in 25 cities and found that only 3 in 10 were suitable candidates.

“The future of central business districts is not being central business districts but being more diverse in uses,” said Ian Zapata, Gensler design director and leader of repositioning and landlord services. “That doesn’t mean you’re not going to have office buildings there, but they need to be really great places to live. By being great places to live, that will actually make them great places to work.”

In general, buildings fit for conversions were constructed prior to the 1980s and have a depth of between 40 feet and 45 feet, Zapata said. But even more important to developers is whether the building’s finances allow a conversion to make good financial sense, he added.

“Typically the math does not work unless you’re acquiring the building below cost or there’s an incentive program,” Zapata said. “[The conversion] might work from a design perspective, but financially, there has to be an added ingredient.”

Conversions can cost anywhere from $250 per SF to $350 per SF, which Zapata said rivals the cost of a new build in some markets. In the past, developers have opted for conversions because they can be done more quickly or the demand for residential outweighs that for office.

Those factors are still at play, Zapata said, but the prevailing force for conversions today is the growing threat of obsolescence.

“What we’re seeing now, especially post-pandemic, is that there are buildings for which it doesn’t make sense to invest too much in office, but the math might work for them to be converted into residential,” he said.

The Cornerstone, an office building in Downtown Calgary, Alberta, is being converted to residential after receiving an incentive from the city.

In Downtown Calgary, Canadian province Alberta's largest city, Gensler’s tool was used to determine that at least 6M SF of vacant office space should be converted to residential. The city joined with its Real Estate Sector Advisory Committee to oversee the transformation, but it quickly became clear it would need to partner with the private sector on cost.

“Without some type of incentive, these projects wouldn’t get off the ground — they just wouldn’t pencil out for the developers,” said Sheryl McMullen, manager of investment and marketing for Downtown Strategy, a business unit within the city of Calgary. “We also wanted to make sure that they started to happen quicker and that we weren’t waiting until a building became 100% vacant.”

Most of Downtown Calgary’s office leases were tied up in oil and gas, McMullen said. As the sector’s office needs began to change, the vacancy issue grew more severe.

Today, the city’s downtown office vacancy rate is around 32%, and property values have declined by more than $16B, which McMullen said translates to roughly $400M Canadian ($297M) in lost tax revenue for the city.

“There was not a lot of vibrancy at all,” McMullen said of Calgary’s office-heavy downtown. “We’ve always had issues in terms of evening activity, and we had all these office towers that were sitting vacant.”

Calgary City Council in 2021 approved an initial $100M ($74M) for office-to-resi incentives. The program reimburses developers $75 ($56) per SF of converted space, with the hope of covering 30% of construction costs, though McMullen estimates cost escalation has pushed that share down to about 25%.

The incentive fund has since been replenished with another $62M ($46M), but city officials estimate they will need to allocate a total of $450M ($334M) to help developers remove all 6M SF. McMullen said her team is hoping provincial and federal government partners will help fill the gap.

“We can’t just wait for the private building owners to figure out how this is going to work in terms of their numbers — we want to incent to make sure it actually happens so we can get more residents into downtown,” she said, noting there are 11 projects either underway or starting soon that make up about a third of the vacant space targeted for conversions.

Construction continues at 1111 20th Street NW in Washington, D.C., pictured in December 2022, where Willco is converting a 1960s-era office to residential.

PRP’s Dougherty has completed two office-to-residential projects and is about to start on a third. Despite his experience in the space, he doubts conversions are the answer to reviving aging downtowns.

“Once you peel back the onion and you go through all the issues at these buildings, the juice isn’t worth the squeeze,” he said. “You go through so much to get these things done, and most apartment developers will say, ‘I’d rather build new.’ … It’s hard to make any money with these things.”

Where conversions make sense, incentives are critical, Dougherty said. To make the math work, projects should cost around $125 per SF, but many buildings are still trading for double that amount. This could change as distress spreads, but even if values fall, he said only certain properties will make good candidates.

“The fact remains that most buildings don’t work as conversions,” Dougherty said. “Office buildings weren’t built to be apartments.”

Source: More Cities Giving Away Money For Office-To-Resi Projects As Threat Of Obsolescence Grows

https://www.creconsult.net/market-trends/more-cities-giving-away-money-for-office-to-resi-projects-as-threat-of-obsolescence-grows/

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Should I Sell or Should I Hold? When is the best time for asset repositioning?

When it comes to selling their investment properties, clients typically ask me,’ Why should I sell?’ Great question. Why should you sell? The obvious answer is that you purchased the investment property as an investment, and it may not be doing as well as other investment opportunities, and after a while, you don’t realize the appreciation and thus maximization of profit from the property until you sell and acquire another investment property. So the question is really, ‘When should I sell? Clients really lose the perspective of the driving reason why they invested in an investment property in the first place. An investment property is just that; an investment. Treated as such, every investment must have a horizon and an exit strategy. If a property was purchased as an investment, then it makes full sense to profit as much as possible from the investment.

The real estate market, like any other market, will go through peaks and valleys. Trying to predict the exact moment of peak or the exact moment the market reaches the bottom is practically impossible. The real estate cycle has four phases; recovery, expansion, hyper supply, and recession. The complete real estate market cycle seems to have an average duration of about 18 years as there is good historical data to support that. So, where are we in that cycle now? How much more upside will we see before we reach the peak? The question really is, ‘What is your appetite for risk?’

Below is a chart of the real estate cycles dating back from the 1800s. The last real estate market crash started at 2006. We are almost 16 years into that cycle. Interest rates are still at all-time lows. Money is cheap, and the threat of inflation is very high. How long can government print money without paying the price down the road? How much road do we have left?

So when is a good time to exit an investment property? As with everything else, real estate is cyclical. Those of us that have been around for some time have witnessed several cycles in the real estate market. Since it is practically impossible to predict the peak of cycles, what strategy should you then use to maximize your investments? Keeping it simple, when evaluating if you should consider selling an investment property, it doesn’t really matter what the current real estate market is like. If you are looking to replace the investment property with another investment property, the ultimate decision to sell should also be based upon if you can increase your returns with the new replacement property, not what state the current market is in now.

There are a number of factors that can impact real estate prices; availability, investment potential, and interest rates, to name a few. Interest rates impact the price and demand of real estate—lower rates bring in more buyers due to the lower cost of money but also expand the demand for real estate, which can then drive up prices. As interests rate starts to inch up, the cost of money increases, and thus the appetite for real estate investments declines.

However, there are many ways that one can still protect their investments. 1031 Exchanges give investors a vehicle to reposition assets and mitigate risk. There are certain asset classes that inherently hold less risk and still perform as an investment vehicle. The questions really come down to; ‘How long do I hold on during this cycle? Do I have the time horizon to outlast another cycle? Is it time to reposition and take advantage of 1031?

As part of the team for our client’s investments, we specialize in building solutions around our client’s needs. We analyze the requirements, crunch the data, and present assets entirely based on their circumstances and the goals they are trying to achieve with their investment.

Have you thought of selling your property and would like to know what it’s worth? Request a valuation for your property below:

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Source: Should I Sell or Should I Hold? When is the best time for asset repositioning?

https://www.creconsult.net/market-trends/should-i-sell-or-should-i-hold-when-is-the-best-time-for-asset-repositioning/