Most of us grew up playing Monopoly and learned at an early age that the way to win the game was to own the most and/or the best properties. Those who didn’t and had to pay rent, lost. It’s a simple concept that easily translates into real life. That said, real life is a bit more complicated.
If you’re considering purchasing rental/income property, it’s best to know what your priorities are and to make a plan. Do you plan to “manage” your rental yourself (collect rents, take care of maintenance, communicate directly with your tenant, etc.)? If so, you will probably want to find a property that is fairly close to home and you should make sure that you are familiar with the rental laws in your area, along with federal Fair Housing Laws. If this sounds overwhelming, you may want to consider hiring a property manager to handle your rental property and allow a budget for this expense. You’ll also want to know your “numbers.” You will need to compare your projected income to both your fixed and unexpected expenses, and make sure that you have the financial strength to cover expenses should you end up with an extended vacancy or a tenant who stops paying rent.
If that last part has you thinking twice, remember the goal. Historically, real estate has been a phenomenal investment. If you are purchasing a property and expect to hold it for a long time, odds are excellent that the value of the property and the rents, will go up over time – ideally while someone else is paying rent that covers the majority of your holding expense. It’s a great way to use leverage and time, to your advantage.
Are you already a landlord, and wishing that you were not? Sometimes, as years and decades go by, a property owner finds themselves wishing that they did not have to deal with their rental property any longer. Having made a great investment long ago, the fear of capital gains taxes prevents them from making a change. If you find yourself in this category, I highly recommend consulting with an excellent 1031 Exchange accommodator. These professionals can guide you through your legal options to sell your rental and transfer into different real estate investment options where you can transfer your equity and defer the payment of capital gains taxes. You may be surprised by the many options available. The timing is especially good right now, given the extension on tax deadlines this year in many California counties, which is providing additional time for identifying and closing on your replacement property. Please consult with your CPA and/or 1031 Exchange specialist to confirm that you qualify for this extension.
If you’re interested in researching your options, I’m happy to answer questions, do an initial analysis and connect you with professionals who can help guide you. Please feel free to reach out to me at 925- 964-5010 or via email at Lisa.Hopkins@Compass.com. I’d be happy to provide you with a complimentary evaluation.
By Lisa Hopkins-Cochran, Realtor® at Compass
