Key Moves Real Estate Investors Should Make Before The End Of 2021

Whatever your goals as an investor, now is the time to take stock and determine the best path to close in 2021 to position yourself for success in 2022. Here are some things to keep in mind.

The end of the year is often a time to tie open ends and get your finances in order. For investors, this can mean re-evaluating their portfolio, making tactical purchases, reallocating funds, and devising a strategy for the year ahead.

Whatever your goals as an investor, now is the time to take stock and determine the best path to close in 2021 to position yourself for success in 2022. Here are some things to keep in mind.

Tax-specific removals

Minimize capital gains tax

Jilliene Helman

For investors who have made capital gains over the year, now is the time to invest those capital gains in a new investment to avoid costly taxes.

“Perhaps you should consider investing in an opportunity zone,” Realty Mogul CEO Jilliene Helman told Inman in an email. “Any investor faced with capital gains tax can defer the tax by investing in an opportunity zone. Profits from the sale of any fixed asset – including stocks, companies or real estate – invested in a Qualified Opportunity Zone (QOZ) within 180 days of the asset’s sale date will receive a full withholding tax due until the end of 2026. “

Benefit from 1031 exchanges

G. Brian Davis

Likewise, anyone looking to avoid capital gains taxes through a 1031 swap, essentially swapping one investment property for another and deferring the taxes, would be wise to get started with a business as soon as possible. The replacement property must be declared within 45 days of the sale of a property. In addition, a qualified intermediary must be employed to oversee both transactions and to hold the profits of the first transaction until the second transaction is completed.

“You’d like to speak to either a tax attorney or an accountant about 1031 exchanges before making an exchange,” said G. Brian Davis, co-founder of Spark Rental, during an episode of his December 2020 podcast, Live Off Rents. “And you have to Consult a qualified intermediary who does not have to be a professional. They don’t have to be licensed or anything, but they can’t be you and they can’t be your immediate family member. And it cannot be someone who is already acting as your broker, like a broker or a lawyer, a property manager, someone who is already working for you in some kind of brokerage capacity. “

Make capital improvements

Depending on the activity and the current demand for home improvements in a particular market, there may still be time to make capital improvements on a property that are tax deductible. All permanent structural changes to a home, like installing a new septic tank, adding a porch to a property, or installing new marble countertops, all fall into this category.

Consider a REIT

Helman also advised that anyone worried about inflation or stock market volatility should consider participating in a private placement or real estate investment trust (REIT) as the value generated from these investments has the potential to increase in an inflationary environment rise.

“Twenty percent of all US dollars in circulation were created in the past 12 months,” said Helman. “And this number corresponds closely to the increase in value that many real estate markets have experienced over the same period. REITs or private placement real estate investments (especially those that invest specifically in stocks) can benefit from inflation compared to fixed income investments or fixed income debt, as in an inflationary environment they can charge higher rents for the real estate and potentially generate additional income. “

“Steady income [or] Investing in fixed income debt can be wiped out by inflation, “she added,” if your return is less than what the market pays after inflation. “

Object-specific removals

Consider buying another property

Doug Brien

When you have the resources available to invest in another property, consider whether or not it makes sense now, and consider your overall investment goals. Mynd’s Doug Brien and Roofstock’s Gary Beasley, experts in single-family rentals, recently gave an in-depth recommendation on investing in single-family homes during a panel at Inman Connect Las Vegas.

“If you have a long-term perspective and the right financing … the risk is relatively low,” said Brien at the time.

Private individuals interested in short-term rental space may also want to pull the trigger now, while demand for top-quality short-term rents and mortgage rates are still relatively low.

Look for sellers with a deadline

For any investor looking to buy a new property within the next month, a good strategy, according to Helman, is to find deals with a seller that needs to close before the end of the year, as the investor, as a buyer, may have some leverage too work.

“Real estate is inherently an irrational market and there can be sellers willing to sell cheaper to close before the end of the year for personal tax reasons,” said Helman.

Evaluate your existing portfolio

Maurie Backmann

On the other side of the spectrum, with home prices continuing to skyrocket lately, it’s also a good time to offload properties that are no longer worth the responsibility.

“With real estate values ​​so high right now and attractive mortgage rates driving buyer demand, now is a really good time to sell a home,” wrote Maurie Backman in a recent post for Millionacres on Concise Tips for End-of-Year-Term Rental Investors. “Think about whether that makes sense for you.”

Price competitive for short term rentals

Depending on the location of a short-term rental, the demand at this time of year (in a ski resort) can rise sharply or decrease (in a beach resort). Monitoring traffic and using dynamic pricing tools can help property owners get the most bang for their buck when demand is fluctuating.

Remember, the general high demand for your rental may mean you get a higher price for your rent than normal, Backman advised Millionacres. “See what other properties in the area are asking for rent and develop a strategy that works well for your home.”

Email to Lillian Dickerson