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11.02.05
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 |
