This is a letter to all the landlords out there that are considering acquiring more rental properties or getting out of the renting business and moving on to other adventures in your life and are looking at options on how to reduce your involvement in your property portfolio.
I believe the first thing that has to happen is determine what would be the perfect arrangement for you. For example, do you like to have the monthly cash flow from the properties or do you prefer to have the lump sum cash from each property and invest it somewhere else.
Given your preference is to continue receiving the cash flow, here are some options that you may already be using or some to consider.
Option 1: Manage your properties yourself. This option can be very time consuming and at times frustrating. You are having to deal with any and every issue that comes up regarding the property from marketing, renting it out, maintaining, cleaning and updating when it becomes vacant and anything the tenant calls you about.
Option 2: Hire a property manager. Many times, landlords are already doing this. They found it is better to have a professional handling the property management issues or concerns listed above in Option 1 than do it themselves. A key consideration is finding the right property management company as well as deciding how involved you will be since you will still have some involvement.
Option 3: Lease with Option to Buy. The flexibility that comes with this option starts with you not dealing with a tenant mentality because you should be dealing with a buyer’s mentality. This will also allow you to get a larger financial commitment from the tenant/buyer. Yes, they may end up buying it but if done correctly, your property management reduces to almost zero.
Option 4: Sell with Owner Financing. I like calling this becoming the bank/lender. Have you ever noticed how banks do not do leases. This is because their primary focus is cash flow. There guidelines are set up so ensure the highest likelihood of receiving the monthly payments without delays. They do not worry about the property maintenance and condition. Only time they are concerned is when they don’t receive their monthly payment. Do you want this to be you?
One point to consider in all these options is the tax implications. In most cases, if you sell and receive a lump sum pay out, be prepared to pay the IRS the capital gains portion. Check with your accountant on what the estimated amount would be and perhaps consider Option 4 to minimize the financial impact.
The real estate market and interest rates will continue to do what it is doing, keep everyone guessing. I believe Option 3 and 4 would be the best return for your money and effort that you invested to build a cash flowing portfolio and if you have decided, exit the rental market. Wishing you the best.
