real people, real advice, real answers
Story Commercial
  • Available Properties
    • For Sale
    • For Lease
  • About
    • The Team
    • What we do
    • Location
  • Blog
  • Contact Us

End of Year Planning for Investment Real Estate

10/24/2016

1 Comment

 
​As the end of the year approaches, this is a perfect time to start thinking about taxes and how to best maximize value.  Many folks that own investment real estate often love the tax benefits.  BUT, if you're thinking of selling your investment property within the next 3 years, it may be wise to really consider some of those "property expenses" you have the accountant write off against your rental income.  

Lets face it, many folks expense as much as they think possible against their rental income.  This reduces the net operating income (NOI) for the property, and thus the tax liability you owe.  This could be a big mistake if you're thinking of selling at any time during the next 3 years.

For example, lets say you expense an extra $1000 against a property with expenses that may be a little questionable.  If you're in the 33% federal income tax bracket, this will save you $330 ($1000 x 33% = $330) on taxes you owe Uncle Sam.  BUT, at the end of the day, your taxes show the property NOI is $1000 less.  

When buying, most investors want to see the last 3 years of property tax returns, since these are the most reliable and verifiable.  In addition, investors often base the purchase price on the net operating income (NOI).  

When selling, we want to maximize the NOI.  If we sell a property at a 7% capitalization rate (similar to a rate of return), then $1000 of increased NOI is worth $14,286 ($1000/7% = $14,286) in increased sale price.  If we take into account selling cost of 7.5% and assume we didn't write off that extra $1000 in expenses for 3 years ($330 x 3 of increased taxes), we would net $12,224 more for the property.  

In summary, for every $1000 of increased NOI (i.e. fewer expenses), you will make an additional ~$12,000 when you sell.  Now that's a good investment!
1 Comment
Wannnnnes link
9/19/2023 10:48:40 am

Greeat read

Reply



Leave a Reply.

    Author

    Jay Story

    Archives

    September 2019
    January 2019
    December 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2015
    April 2015
    January 2015
    June 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    May 2013
    April 2013
    March 2013

    Categories

    All
    1031
    Agency
    Art
    Cash Flow
    Downtown
    Downtown Housing
    Downtown Office
    Downtown Retail
    Infill
    Irr
    Landlord
    Leasing
    New Development
    Representation
    Taxes
    Tenant
    Trends
    Vacancy
    West End

    RSS Feed

story commercial, llc
104 s capitol blvd suite 201
boise, id 83702
p 208.841.8320
Terms and Conditions
Privacy Policy​