We hear it all the time, real estate is an illiquid asset. Commonly used in the context of risk, investopedia defines illiquidity as “the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value1.” Opposite to securities that are traded at high volumes, such as stocks and treasury bonds, illiquid assets include private securities and hard assets that are not traded as frequently.
There is no surprise that the DST market is heating up. As more and more quality deals become available, investors are looking for ways to defer their capital gains, while benefiting from the passive nature of DSTs. As noted by FactRight, equity sales in 2017 of DST offerings were nearly $2 billion, a 10-year high1.
As we discussed in a previous blog, understanding of personal return objectives and investment constraints is often overlooked in real estate investing, although the same principles should apply as with any financial investment. In that blog, we focused on return objectives, what they are, and how they might impact your decision-making when it comes to investments. Also discussed was risk tolerance, which, when paired with return objectives, are used to determine the best investment “fit” for an investor.
As we mentioned in Part 1 of this series, e-commerce is changing the way we do business. From the way we communicate to the way we transfer products and services, these changes have a dramatic impact on the real estate industry, especially affecting the productivity and value of retail property types. Although one may believe that this particular sector of real estate is stable, looking to increasing values since the Great Recession, a recent shift in returns has shown evidence of a distressed market, that has been significantly impacted by how the sector has been conducting business, and how consumers are reacting.
If you’ve ever met with a financial advisor to discuss your investment portfolio, you’ve likely heard the terms “return objectives and investment constraints”. This seems fairly straightforward. You certainly want to know what kind of returns you might receive from certain types of investments. And, it’s a good idea to understand what might be standing in the way of those returns.
In a previous blog, we noted that 1031 Exchange rules can be challenging. That article focused on three Internal Revenue Service (IRS) rules when it came to identifying the replacement property or properties for a successful exchange.
When it comes to a commercial property acquisition, the typical investor generally spends time performing due diligence. He or she will study the property’s tenants, net operating income, age, location and other information, to make the best investment decision possible.
About a year ago, we published an article titled “Disadvantages of Delaware Statutory Trust (DST) 1031 Exchange Replacement Properties” and it quickly became one of our most read articles. In fact, it remains our most popular article today. I worry that readers of that article might think “Why would I even keep reading about DSTs?”
Realized is fortunate to have Mark Roderick as its guest contributor for this week’s blog. Mark is a well-respected, securities attorney with Flaster/Greenberg. He is also one of the thought leaders in the United States on crowdfunding, and the author of the Crowdfunding Attorney Blog.
There is no surprise that real estate investing stands as an attractive opportunity for individuals trying to grow their wealth. Real estate investments cater to diversification1, while allowing for the potential of steady risk-adjusted returns backed by real property. These potential returns that investors look for don’t exist without the onset of a degree of risk, however, making these kind of investments not all rainbows and butterflies - some investment objectives may vary. Whether it derives itself from the market, tenant, or even financing of the property, risk is assumed in a variety of ways and differs property type to property type.
