We’ve all been keeping an eye on the real estate market as the COVID-19 crisis has unfurled across our communities. However, if you’re an “active” participant in passive real estate investing in the residential rental sector and thinking of selling your properties, you’ve probably been watching far more closely.
As far back as June 2019 and leading into early March of this year, there was plenty of speculation as to whether we were about to enter another housing market recession. Speculators and investors had been tracking the market and were alerted of several trademark warning signs that every property investor should be keeping track of.
- Asset bubbles were bursting in March as we watched our stock market plunge as a result of the novel Coronavirus.
- An inverted yield curve in 2019 in the wake of a bull market, and again in 2020 during the early days of the crisis.
- An ever-widening gap between household income growth and rising home prices across the nation.
- Changes to the tax code as part of President Trump’s tax reform plan for the 2018 tax year.
- A tremendous increase in the volume of “flipped” homes—even as profits sank.
Doom and Gloom? Not Quite
However, there have also been some signals that a housing recession may not be imminent after all:
- A majority of renters were still able to make their payments on time
- Interest rates are dropping—and show no signs of slowing down
- Lenders increased the strictness of their lending terms.
That last one is especially important because a wild-west approach to lending is partly what spurred the housing market crash in 2008.
Big names in banking like Chase, Wells Fargo, and US Bank all adjusted their minimum score requirements, even across FHA and VA loans, which typically hover around lower scores. Most lenders across the country make down payments of 20% a requirement if you expect to get a loan. What does this mean for investors looking to offload their portfolios?
Essentially, you’ll have more access to qualified buyers than ever before, and whichever properties you decide to sell will sell quickly. However, this security in the residential housing market doesn’t protect any potential sale from capital gains tax—and that’s a problem for investors who have amassed a considerable portfolio over time.
Problem: You Want to Defer Capital Gains Tax
If you’re looking to downsize your portfolio, you’ve likely reached a point where you’re ready to enjoy the benefits of all that you’ve worked so hard to earn, and the market—rather than tanking due to COVID-19—was simply put on pause. You’re also aware that the capital gains tax will put a punishing dent in any returns you might see. A sale would essentially strip you of the reliable income that passive real estate investing provides.
Even during a global pandemic, where so many investors were wondering if residential rentals would crater as a result of rising unemployment, rental payments at the end of May 2020 were only 1.5% lower than their 2019 counterparts. It showed, in part, an incredible commitment on the part of renters to make their payments and the effectiveness of payment plans that were put in place. This is the kind of income security you need right now as we move into the future.
- What if you could enhance the diversity of your current portfolio by tapping into economies of scale?
- What if you could convert your managed portfolio—tax-deferred—and keep your earning potential at maximum?
- What if you were no longer tied to your properties by ownership—but could still benefit from their income potential?
REIT investing makes this and so much more possible for investors looking to easily access their acquired capital—without the tax hit.
Solution: The UPREIT Investing Structure
When you’re ready to liquidate your holdings while retaining the income benefits that properties provide long-term, an UPREIT structure can be the perfect vehicle for continued passive real estate investing. With the proper residential housing REIT, you convert your accumulated portfolio into hands-off operating units that allow you to keep enjoying the benefits of passive income with increasing liquidity.
- Enjoy continued income from investment properties after you convert them into professionally managed operating units.
- Once your holdings become operating units, you can still tap into the benefits of passive property investing but at an increased scale—and without the work. This is the kind of investment you can manage in your sleep!
- Profit twice: tax-deferred operating units preserve your wealth, help you liquefy your assets, and make you wish you had invested in a DFW UPREIT sooner!
You Deserve More From What You’ve Earned
From one property investor to another, we know you’ve worked hard—and smart—to get where you are now. There’s no reason you should have to lose a significant portion of your earnings to the capital gains tax. We’ve been where you are—and that’s exactly why we created a better alternative to a hard sale for investors.
When you tap into the benefits of the Peak Housing REIT, you safeguard your return on investment while avoiding the taxation that comes with the sale of a massive asset pool. Plus, you preserve your access to continued income potential through passive real estate investing.
If this sounds like the kind of financial freedom you’ve been searching for as an investor, get in touch with your REIT experts at The Peak Group! We’re here to help our fellow investors gain insight into how to strategically employ the benefits of REIT investing while they defer capital gains tax on their portfolio.