What is the exit strategy for a landlord?
Once you are reasonably settled in your landlording business, you’d start thinking about future. And this question will come to your mind, again and again.
What’s going to be my exit strategy?
The Exit Strategy for a landlord comes into the picture when a landlord is either approaching retirement or getting tired of the hassle of being a landlord. In either case, it requires a careful planning.
If you get an affirmative answer to the questions like –
- Have I achieved my goals?
- If I wanted to achieve financial freedom, am I comfortable now with the cash flow which I’m generating?
- If I want to exit because of the hassle of being a landlord, have I explored any better option like a partnership?
Then you’re ready to move on!
The factors affecting the exit strategy for a landlord revolves around the 3 main reasons. Why did you enter the landlording business in the first place?
- To achieve financial freedom from regular full-time job
- Earning a capital growth that would eventually contribute to the pension pool.
- Pass the property on to one’s children
If you are absolutely sure of exiting the business, these are the factor’s affecting the exit strategies for a landlord –
The Resulting Regular Income for the Rest of Your Life
The most important factor is the resulting amount which you are going to receive from the proceeds of all sold properties. And how you would use it to re-invest into any other retirement instruments to create regular income for the rest of your life. In most cases, the retiree would like to have regular cash-dollars coming into his bank account to live a worry-free life. Now there are many other strategies to create that month-by-month cash flow. Your financial advisor would help you with the retirement income strategies.
Real Estate Cycle
As a seasoned real estate investor, you’d know the real estate prices go up and own in cycling manner. So it is of utmost importance to sell your properties in a favourable cycle. After all, You haven’t worked so hard to sell your properties in a lacklustre market condition without careful planning.
Numbers of Properties You Own in Your Portfolio
It’s not difficult to understand what’s the difference between selling one or a couple of properties and selling 10 or more properties. The bigger portfolio needs an exit strategy with longer period consideration.
Is There a Possible Take Over Option?
If someone is willing and able to take over or purchase all of your properties, that can be a good option for you. Because you would be able to plan the whole strategy in a timely manner as against the uncertainty of selling your properties one-by-one in an open market. This is particularly true in case of a large portfolio.
Income Tax/Capital Gains Tax Implications
There are many issues to be considered when it comes to Income tax. Considerations like if you have individually owned the property or you have owned it through a company, would come into play.
If one of your children is going to inherit the property, the inheritance tax needs attention.
Whether you sell all your rental properties in open market one-by-one or if you give it away to one of your offspring, it’s very important to do the income tax/capital gains tax planning. In the wake of proper strategy, you may lose a big chunk of proceeds from your properties to the Tax Department.
Conclusion: A careful planning of exit strategy would save you a huge amount of money. As against that, if you don’t pay attention you may lose a fortune in selling deal or tax dollars or both.
Characteristically, the real estate transaction are not quick. Which works in favour when you want to exit. It gives you enough time for planning your successful and profitable exit.
I hope you find this article helpful. Please share your views on this topic in the commet section at the bottom of this page.