Property Investment Exit Strategies
- Mark Edwards ·
- 0 Comments ·
- October 29, 2019
In property investment, as in life, you generally want to avoid getting yourself into a situation without having a clear plan as to how you are going to get out of it.
Even if your intention is to be a property investor for the rest of your life, you may not necessarily want to stay invested in the properties you currently hold and even if you do, the reality is that you are still going to exit this world itself.
At some point will need to have a strategy in place regarding what will happen to your property investments (and any tenants inside them) when you do.
Exiting Property Investment by Death
Your property portfolio will automatically form part of your estate and that not only can lead to a hefty Inheritance Tax bill, it can also lead to a major headache for your executor as they try to balance keeping your tenants happy while getting as good a price for the property as possible while completing the process of probate as quickly as possible.
Fortunately, there are a couple of strategies you can use to address this.
If you only have a small portfolio, then you can take out a life insurance policy to pay the expected IHT bill and, if necessary, to make provisions for your loved ones.
If you set this up to be paid into a trust, it will be ring-fenced from your estate and thus not only made available more quickly than the proceeds from the estate but also kept out of the IHT calculation. Then you can leave instructions/guidance for your executor.
If you have a larger portfolio, then you may want to look at working through a limited company structure, which involves some administration (and expense) to set up but then gives you much more room to maneuver when it comes to divesting yourself of your portfolio. In either case, professional advice is recommended.
Exiting Property Investment During Life
There are two main reasons why you might wish to exit property investment during your lifetime.
One is because your life changes (and hence you need to make a change to your approach to investment) and the other is because your investments are not performing as you expected (which can include over-performing as well as underperforming).
The key to managing the first situation is to combine keeping track of your life and thinking (and planning) ahead as far as possible with giving yourself as much flexibility as possible.
This last point could be something of a challenge since the transactional costs of buying and selling property make it very much a long-term investment but you could, for example, look to buy property which has the potential to appeal to several markets, for example Fairfield in Liverpool is known as a student destination but is also popular with young professionals and with people seeking short-term rentals.
The key to managing the second situation is to define your investment goal(s) clearly, to have an effective strategy for measuring whether or not they are being met and to define what you will do in the event that an investment is either over-performing or underperforming.
You might even want to look at getting ahead of factors which could impact the performance of your investments such as tax changes which might reduce your yield or increase your exposure to Capital Gains Tax.
P.S. Many thanks to the Pure Investor team for providing this valuable material. They are specialists in UK property investment, with a wide range of investment opportunities including student properties and buy-to-let in Manchester, Liverpool, Sheffield and Leeds.