Feature Article by Mike Blum & Richard Moore: Timing Is Everything...How to Maximize Returns and Minimize Risks

With the national economy still trying to find firmness, many are trying to figure out how to regain a lost footing from a 40% decline in their 401K or other investment portfolios. People holding real estate ask: “do I sell now in a down market or do I hold and hope things will regain their value in a few years”?

On the other hand, investors with capital look for a really good deal…perhaps below market.

It appears that owner/sellers and investor/buyers may have a common objective: Maximize returns, minimize risk. Or put more simply: Making money in real estate is all about timing. The big question is: When is it the right time to buy or when to sell?

Historically, the time to buy and the time to sell were solely dependent on the market value of property. When the value reaches a target value, the investor sells, makes his profits and moves on. Today, there is an added variable which must be considered when deciding to sell; Capital Gains Taxes.

Right now, capital gains taxes are calculated on 15% of the gain. Investors have enjoyed this tax rate since 2003; however, this is about to end. Without any new legislation from Washington, this rate will increase to 20% in 2011. There are indications that the White House is interested in raising rates higher than the 20%, and possibly as high as the highest tax rate. The ordinary tax rate is scheduled to return to the old 39.6%, but this rate is also under consideration by the current administration in Washington.

Therefore, the likelihood of a significant increase in the capital gain tax rate makes selling appreciated property sooner than later a smart move. So what does this mean?

Well hypothetically, if the capital gain rates moves from 15% to say 30%, a property which has doubled in value will have to fetch nearly 11% more for the sales price to return the same net after tax profit to the seller. This additional 11% will only keep the owner/seller in the same place as they are now before the tax rates go up. The problem will be more severe if the capital gain rates go higher than 30%.

So if you are an owner/seller, now may be a good time to think about liquidating property that has appreciated while the tax rates are relatively low. Capital gain tax rates will not stay at this rate for much longer. If you own open land or occupied buildings and are thinking about holding in anticipation of a higher price when the economy turns or if you have capital and are not adverse to paying less and getting more, it may be advisable to consult your financial professional and realtor to analyze your situation and plan the best course of action.

If you would like to learn more about your options contact Richard Moore at 956-630-3053 richard@cpamoore.com or Mike Blum at 956-994-8900 mikeb@nairgv.com.

Richard Moore is a CPA and owner of Richard Moore and Company. Richard is a recognize expert in his field. Michael J. Blum is a Partner and Managing Broker for NAI Rio Grande Valley, an affiliate of NAI Global one of the world's leading providers of commercial real estate services.
Download Article