Do you have a property investment exit strategy?
With so much focus on investing in property, we sometimes forget about how we may want to exit from that investment.
An exit strategy is for what you might want to do with that property later in life. The main benefit of developing an exit plan early on is that it will help you to gain the most profit from that property investment.
Exit strategies are usually geared toward retirement. However, although we talk about retirement in this article, exit strategies and portfolio restructuring can come into play at any time in your property investment journey.
Sell your whole property portfolio
If you’re looking at being as free as possible during your retirement, then you may want to sell your whole portfolio.
You then have no property responsibilities, and you’re in the enviable position of having the cash to spend, invest or do whatever you wish.
The fly in the ointment with this strategy is that it’s not particularly tax-efficient because of capital gains tax. However, it’s still an option if you decide you no longer want to be involved in property investment.
Keep hold of your properties
It’s understandable that as you get older, you may want to relinquish some of your property responsibilities. But nowadays, many property investors are choosing to continue to receive income from their properties throughout their retirement.
Whilst it may be more of an issue to take out a residential mortgage once you’re over the age of 60, buy to let mortgages are viewed differently. But you should be aware that your heirs may have to refinance or sell your properties to pay inheritance tax.
Or, you could own your properties within a company. In this scenario, age isn't an issue as long as there's another director with enough income to personally guarantee the loans.
Sell some, keep some
A common property investment exit strategy is to sell a portion of your portfolio to pay off the debts on the rest. If your properties have gained in value before you retire, you may only need to sell one property to pay off the debts of the others. That’s if you haven’t refinanced too heavily.
You then own the properties you’re left with outright and are no longer impacted by changes in house prices or interest rates. And, if rents rise in line with wages, a fall in capital value won’t be a problem.
From then on, you can enjoy the reliable income those properties generate during your retirement. The only downside of this strategy is that you could find your portfolio isn’t diverse enough – this can put you at risk of a slump in income due to void periods or non-paying tenants.
There’s also capital gains tax to consider. You may want to minimise the impact of this by selling your properties gradually over a number of years to make full use of personal allowances.
Restructure your property portfolio
At any point, you may decide to restructure your portfolio for many different reasons. It could be that one or more of your properties is no longer working in the way that you intended.
In these cases, you may opt to combine strategies. If you want to invest in other properties, sell the elements of your portfolio that aren’t working. This will help to reduce your loans and give you cash to invest.
Later in life, your priority may switch from capital growth to reliable income. If you do want regular income, hold on to properties that produce a strong yield and try and keep mortgages low.
A restructure should focus on where you are now and where you want to be later in life.
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