I had to pleasure of attending the annual National Association of Residential Property Managers (NARPM®) conference in Coronado Island, California. It was rough to enjoy such pleasant weather and scenery, but I gladly “took one for the team.” Since attending that conference, where I learned a lot about best practice improvements, we have been implementing changes at Polaris Property Management. One of the most head-spinning sessions was about the new tax laws and how they will impact tax planning for real estate investors.
The presentation was led by, Integrated CPA Group, a CPA company that specializes in real estate tax issues, and covered many of the important changes investors should anticipate from the Tax Reform Act.
Key take-aways from this session for me were:
Tax laws didn’t get any simpler.
If anything, advanced tax planning is even MORE critical every year. Case in point, with the change in standard deduction limits, you may wish to consult your tax professional on timing of charitable contributions and other SALT items. In short – tax planning for real estate investors is more complicated. (Side note–if you are currently doing your own tax return, it probably is time to consider interviewing a CPA for your 2021 or 2022 returns. If you’re in the market, Gary Timpe, CPA & JD is an excellent Indianapolis resource I’ve personally known for more than a decade.)
Real Estate Investing isn’t getting any easier.
While still extremely profitable, the market trends are starting to line up such that we might be hitting an inflection point in Indianapolis area rentals. Basically, rental prices and asset prices had peaked in 2018 and stayed pretty constant (even receding some in 2019 and 2020). However, 2021 has seen some large increases. How can investors protect their margins?
- By employing smart property management,
- deploying their investment capital intelligently and watching their cost basis, and
- monitoring the market supply of homes for rent in Indianapolis to see how ‘crowded’ it might be in your market area.
As asset prices peaked, more and more investors were selling their homes. This is especially true in states such as California, which had a massive and controversial proposition regarding rent control on their mid-term election ballot. In addition, reluctant landlords (who were once underwater on their mortgage) were also able to sell their homes. Both injections of supply are getting bought by owner-occupant buyers or other non-disciplined real estate investors at retail pricing. The end result for investors – low inventory that most investors must fight over if they wish to add to their portfolios. My recommendation? Keep some power dry to take advantage of likely buying opportunities in 2022 and 2023.
Interested in learning more or going deeper into this subject? They were kind enough to share their Prezi slides with me. Click here to view the slide deck.
Also, I know some of you may not own rental property yet, but I strongly encourage you to still review the slides. The Tax Reform Act involved more than just tax law changes impacting investors–it impacts everyone, living and deceased (since it also relates to Estate Tax issues.)