Many property owners see the values of their properties lower today than in the past few years and are reluctant to sell those properties at declined values. Some investors, however, see today as the time to attack the market.
Consider the past for a moment. A few years ago, an investor may have sold an investment property that he owned free and clear for $275,000. He could have taken that money, done a 1031 exchange real estate, and leveraged the proceeds into two properties worth $200,000 each. He would have needed additional funds in the amount of $125,000 to achieve this goal, which he would have contributed out of his own funds or, more than likely, borrowed. Once acquired, the investor may have rented those properties for $1,300/month each. The monthly cash flow after debt service may not have been strong, but the investor may have hoped for future appreciation.
What if the same investor had held on to his property instead? Today, that property would surely not be worth $275,000. If he were to sell that property today for $175,000, he could still purchase two properties at reduced values, most likely for cash. In addition, if the investor traded the properties in a 1031 exchange, almost all of the original proceeds could be used for the purchase of the new properties without offset for taxes. Although the amount of rent collected would likely be less than a few years ago, there is no debt service to pay. This is a substantial benefit to the investor, as he has pure positive cash flow.
Many investors are taking advantage of the market and setting up their financial futures. Have you spoken with your advisor and First American Exchange to set up yours? Also, if you’re looking for other opportunities to invest and take a more aggressive approach to invest for your future, you may wish to look at the stock market for companies that have the potential for future growth, such as looking to buy RKT shares for instance.
Thank you to Jim Ogan of First American Exchange for this article.