Whatever your goals as an investor, now is the time to take stock and determine how best to close 2021 so that you can position yourself for success in 2022. Here are some things to keep in mind.

The end of the year is often the time to work out the details and get your finances in order. For investors, this can mean reassessing their portfolio, making tactical purchases, reallocating funds, and strategizing for the coming year.

Whatever your goals as an investor, now is the time to take stock and determine how best to close 2021 so that you can position yourself for success in 2022. Here are some things to keep in mind.

Tax-specific moves

Minimize capital gains taxes

Jillene helman

For investors who have realized capital gains during the year, now is the time to think about investing those capital gains in a new investment in order to avoid costly taxes.

“You might want to consider investing in an area of ​​opportunity,” Jilliene Helman, CEO of Realty Mogul, told Inman in an email. “Any investor faced with a capital gains tax bill can defer tax by investing in an area of ​​opportunity. Profits from the sale of any investment asset – including stocks, business, or real estate – invested in a Qualified Opportunity Zone (QOZ) within 180 days of the asset sale date receive a full deferral capital gains tax due until the end of 2026. “

Benefit from 1031 exchanges

G. Brian Davis

Likewise, anyone looking to avoid capital gains taxes through a 1031 exchange, essentially swapping one investment property for another and deferring taxes, would be wise to strike a deal ASAP. Within 45 days of the sale of a property, the replacement property must be declared. A qualified intermediary should also be used to oversee both transactions, retaining profits from the first until the second transaction is completed.

“You want to speak with a tax lawyer or accountant, about 1,031 exchanges before you make one,” Spark Rental co-founder G. Brian Davis said during a December 2020 episode of his Podcast Live Off Rents. “And you’ll have to bring in a qualified intermediary, who doesn’t have to be a professional. They don’t need to have a license or anything, but they can’t be you and they can’t be your immediate family member. And they can’t be someone who is already your agent, like a real estate agent or a lawyer, a property manager, someone who is already working for you as an agent.

Make capital improvements

Depending on the work and the current demand for home renovations in a specific market, there may still be time to make capital improvements to a property, which are tax deductible. Any permanent structural change to a home, such as installing a new septic tank, adding a porch to a property, or installing new marble countertops, falls into this category.

Consider an REIT

Helman has also advised anyone concerned about inflation or stock market volatility to consider participating in a private placement or real estate investment trust (REIT) as the value generated by these investments has the potential to increase. in an inflationary environment.

“Twenty percent of all US dollars in circulation were created in the past 12 months,” Helman said. “And that number closely matches the appreciation that many real estate markets have experienced over the same period. REITs or private real estate investments (especially those that invest specifically in stocks) may benefit from inflation over fixed income investments or fixed rate debt, as you may charge higher rents in properties. in an inflationary environment and generate additional income, potentially.

“Fixed income [or] Fixed-rate debt investments can be crushed by inflation, ”she added,“ because your return becomes lower than what the market pays after inflation ”.

Property specific moves

Consider buying another property

Doug Brien

If you have the resources available to invest in another property, consider whether it makes sense to do so now, taking into account your investment goals as a whole. Single-family rental experts Doug Brien of Mynd and Gary Beasley of Roofstock recently gave a good recommendation to invest in single-family rentals now, during a panel at Inman Connect Las Vegas.

“If you have a long-term view and the right funding… the risk is relatively low,” Brien said at the time.

Those interested in short-term rental space may also want to pull the trigger now, when demand for short-term rentals is at all time high and mortgage rates are still relatively low.

Find sellers on a deadline

For any investor looking to buy a new property in the next month or so, Helman said a good strategy is to look for deals with a seller who needs to close before the end of the year because the investor, as a buyer, may have a little leverage to work.

“Real estate is inherently an irrational market and there may be sellers willing to sell for less in order to close before the end of the year for their own tax reasons,” Helman said.

Evaluate your existing portfolio

Maurie backman

On the opposite end of the spectrum, with house prices continuing to skyrocket lately, this is also a great time to get rid of properties that are no longer worth the liability.

“Because property values ​​are so high right now and attractive mortgage rates are driving up demand from buyers, now is a great time to sell a home,” Maurie Backman wrote in a recent post for Million acres on good end-of-year plans for short-term rental investors. “Think about if this makes sense to you. “

Price short term rentals competitively

Depending on the location of a short-term rental property, demand may increase at this time of year (in a ski town) or it may decline (in a beach town). Monitoring traffic and using dynamic pricing tools can help property owners get their money’s worth as demand fluctuates.

“Keep in mind that due to generally strong demand, you may be able to charge a higher rental price than usual,” Backman advised on Million acres. “See what other properties in the area are asking to rent and come up with a strategy that works well for your home. “

Email Lillian Dickerson


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