HELPFULFACTS.NET

Summer months are here and this usually spells doom for investors. Volatility becomes rampant and your portfolio can see increased losses. Statistically between the months of May and October, these are traditionally the worst months for the Stock Market.

Tracked for the past 50 yrs+ by Stock Trader’s Almanac…here’s the summary:
If you invested in the Dow from November through April, and switched to fixed-income investments from May to October, over a 54-year period (1950-2004), your returns would have been quite dramatic. Using this strategy, a $10,000 investment in the Dow compounded from 1950-2004 produced a $492,060 gain in the November - April period, versus a loss of $318 for the May-October period.

As a landlord who has acquired several new properties in the past several years, I have found nothing makes renters more nervous than a change in management. Fears of rent hikes, added fees and new rules are just some of the concerns tenants wonder about when there is a change in management.

If you are thinking of selling a rental property anytime soon, help ease your tenants’ transition by keeping them informed during the process and reassuring them of the new owner’s obligations.

First, tell them all rental agreements in place at the time of the sale are still legally valid until the end of each lease term. The new landlord cannot change the terms of any existing leases or move for an eviction without proper cause.

Second, rent cannot be increased in the middle of a lease just because the new owner wants to raise the rent. New owners must abide by the rental rate in the current lease.

Third, no changes can be made in lease provisions regarding policies concerning pets, number of occupants or anything else stipulated in the current agreement.

As the seller, once you have accepted an offer and have a deposit, you should begin sharing information on the property and tenants with the new owner. Let your tenants know you are selling the property as soon as you are confident the sale will go through. Keep tenants in the loop throughout the process by providing any important dates to them (inspections, closing, etc.).

Once the sale is final, send a farewell letter to each tenant introducing the new owner, providing the new landlord’s contact information and any other items needed for a smooth transition. Often times, the new owner will probably want to meet the tenants and inspect their units.

The final step is the closing, where you’ll turn over all keys, deposits and paperwork to the new owner. After this, you no longer own the building and can walk away knowing you have treated your tenants with respect and helped them to transition smoothly with their new landlord.

Your rental property sold and the closing went off without a hitch. Time to celebrate, right? Not just yet. Uncle Sam may be waiting for his share of the profits.

Capital gains taxes are a part of all real estate transactions realizing a gain (unless you are rolling the profits into another investment vehicle through a tax-deferred 1031 exchange). Property sales taxes are due at the time of sale. Of course, if the sale shows a loss, there is no tax liability.

Here is a closer look at the different tax scenarios of selling a rental property:

Capital Gains – After a building has been owned for more than 1 year, it is considered a long-term investment. Sellers pay capital gains on the amount of the selling price minus selling costs and adjusted basis in the property. The tax on this amount (the capital gain) is calculated at the capital gains rates, which is lower than the regular income tax rate.

Capital Loss – If you lose money on the sale, you may get a tax break in the form of a capital loss. Keep in mind a paper loss–a decrease in the property’s value below its purchase price–does not instantly qualify as a loss. The loss must be calculated on the sale or exchange of the property. You can then use this loss against capital gains or against regular income when paying your taxes, depending on tax rules.

Like-Kind Exchange – If you want to defer capital gains taxes, you can roll the profits on your sale into another investment property under a federal 1031 exchange, also known as a like-kind exchange.

Here is how it works: The proceeds from your first investment property are held by a third party until you purchase another investment property within a specific time frame. Specific rules must be followed such as type of property, value, etc. Assuming the transaction meets all IRS requirements, any capital gains are deferred until you sell the new property.

Importantly, you can continue to build equity by transacting one like-kind exchange after another. Many property investors use like-kind exchanges to build their rental property holdings.