Know Your Investment Property Objectives For 2020

With the new year comes both new challenges and new opportunities for your investment properties. The one thing we know for sure is that nothing ever stays the same. While we never know what the new year will bring, we do know it will be different from the last. Meanwhile, an owner’s objectives also change as they progress through life’s chapters. Focus often shifts toward preservation of capital (i.e. not weathering another major market correction), freeing up more time and enhancing current income. Whatever chapter you find yourself in, we encourage you to use the start of 2020 to consider what your real estate investment objectives are going forward.

Determining objectives is a process we walk through with our clients regularly. It requires taking a “big picture” approach and considering not only your specific properties, but larger considerations such as estate planning, financial planning, and risk tolerance. Once objectives are determined, strategies can be proposed to best position investment property owners to accomplish their goals and realize their objectives.

There is an abundance of strategies available to investment property owners – perhaps more than those available to owners of any other asset class (e.g. refinancing, third party management, sales, exchanges, trust structures, etc.). Determining which strategy is best can be complicated. Additionally, change can feel daunting, especially when going at it alone. As a result, many investment property owners end up defaulting to the status quo even though there is a gap between their financial / lifestyle objectives and current properties owned.

Determining objectives is no simple task. To help you work through this process, we developed a simple framework called “T.R.R.I.P.” that can be reviewed at the beginning of every year to see whether your objectives have shifted over the past 12 months. While not exhaustive, asking yourself the following questions and discussing these “thought points” with your spouse, family and business partners (if applicable) will help you determine if your current properties are best positioning you and your family for long-term success.

Taxes

• How much of the income from our properties is sheltered by depreciation?
• What would our tax liability be if we were to sell?

Regulation

• What direction do we anticipate landlord laws to go in the coming year?
• Are there proposed state and local regulations outside of landlord laws we are concerned about?

Risk

• Has our tolerance for risk changed from last year?
• How do we view investment risk? Are we feeling overly concentrated in one property type and/or in one market?
• How do we view liability risk (e.g. tenant risk, lawsuit risk, etc.) associated with our current properties?

Income

• How much income do we currently earn and how much would we like to earn annually?
• Do we anticipate our income needs changing in the coming years?
• How do we view the tradeoff between income and free time?

Personal Time

• Do our properties afford us sufficient personal time to travel, spend time with family, and enjoy life?
• Are there certain parts of property ownership we enjoy (e.g. acquisitions and/or value-add) and others we do not (e.g. routine management and / or maintenance)?

If you feel there is a gap between the current investment property you own and your objectives, give me a call at 714-742-3700 or email me at mikelembeck@gmail.com to schedule an informal, complimentary consultation to discuss your investment property and how I can help.