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Need More Income from your Investment Property?
By Paula Straub
The goal of every real estate investor is to see their property appreciate in
value and to have it generate a positive cash flow. The appreciation normally
takes care of itself if the property is of good quality, in a good location, and is
held over a long enough period of time. Just like the stock market, real
estate has proven to go up way more than it goes down over time.
The positive cash flow component is not always a given though. Ask any
seasoned investor, and unless the property is owned free and clear, there
have probably been times when he's had to dip into his own pocket to pay
for some aspect of his rental. Who hasn't seen a raise in homeowner's fees,
property taxes, an outlay of cash for a new roof, plumbing, paint, carpet,
appliances, or a length of time supporting it between tenants.
So, what if you're nearing retirement age and see the need for increased
and steady income? You may even look forward to taking a permanent break
from the "joys" of hands-on property management. We all deserve to reap
the rewards of our labors, right?
Basically, to meet these goals, one can do one of two things.
1. Sell the property, pay all the capital gains taxes, recaptured depreciation,
etc. and pocket what is left. To receive an income, one would have to
either live off whatever interest/gains your proceeds produced, or begin
depleting your funds to provide you with the amount of monthly income you
deem necessary. Depending on your age and financial needs and whether or
not you desire to leave as large a legacy as possible, this approach may or
may not work for you.
2. Employ a strategy that will defer the payment of any tax or depreciation.
Let all of your gains continue to work for you throughout the course of your
retirement and into the next generation. Yet, you will still get a significant
and partially tax deductible monthly income.
What strategy is #2? If your property is over a million and you are not a
young retiree, you might consider a Private Annuity Trust. You will get
monthly income for the rest of your life, but you will be depleting your asset
and only spreading out the repayment of capital gains tax over a longer
period of time. That is a simplification of a complex agreement, but that is
the gist.
A better option may be a 1031 exchange into a tenant in common (TIC),
Basically, you exchange your property for a deeded partial interest in a grade
A commercial property. You sign a contract with a property management
company, and in turn receive a monthly income (typically 6-7% of your total
equity). You never have to deplete your asset, and it can pass to your heirs
at the stepped up basis.
The 1031/TIC exchange is a fairly new concept, sanctioned by the IRS in
2002. It is projected that the influx of property assets into this type of
exchange will be close to 5 Billion dollars in 2005. That's a lot of equity. Why
not let your equity continue to work for you instead of parting with a lot of
profits that would take you years to replace.
About the Author
How much would you pay to save thousands in Capital Gains Tax? Paula will share the secrets in a free Teleconference . Sign up now at : http://www.savegainstax.com
Article Source: http://www.simplysearch4it.com/article/10093.html
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| Some other articles by Paula Straub | |
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