Ask any investment banker or financial planner about the best advice when it comes to building and maintaining a portfolio designed to provide steady returns, and the answer generally boils down to one word: Diversification.
Individuals acquire and own real estate because it is considered to be a good investment. When handled correctly, ownership of an office building can produce a steady cash flow, and a profitable return when the asset is sold.
There is a degree of risk when it comes to life, in general. Those who drive risk getting into accidents. Those who step off front-porch stairs risk tripping and falling. The good news here is that people are generally prepared to reduce, or mitigate, such risks. For instance, most will drive defensively, stopping at stop signs, looking before proceeding, and yielding the right of way. A home owner or house visitor will scope out any impediments before descending those porch stairs.
In an earlier blog/chapter in this e-book, we introduced the concept of Investment Property Wealth Management™ as an alternative to real property ownership. The idea behind the IPWM™ solution is to use commercial real estate as a foundation to generate passive income, an important factor for investors approaching retirement.
The goal of the Investment Property Wealth Management™ program is to move direct real estate owners into wealth managers. This is done by placing “hard” assets into professionally-managed portfolios, then offering owners the opportunity to invest in these portfolios. The strategy behind these portfolios is based on a concept known as modern portfolio theory.
Real estate assets are alternative investments that are considered, by many, to potentially offer low-risk/high return cash flow, as well as portfolio diversification. For the average investor, real estate assets are typically found in the former of direct property ownership. The direct ownership style — buying and owning a stake in physical real estate, such as an apartment, office or retail property —is generally considered a stable investment, designed to provide regular cash flow and built-in asset appreciation.
A 1031 “like-kind” exchange is widely used by real estate investors to create and preserve wealth. In simple terms, Internal Revenue Code §1031 allows real estate investors to defer capital gains taxes on the profits from selling an investment property, provided the sale proceeds are “exchanged” (reinvested) into another “like-kind” property (investment real estate).
The Delaware Statutory Trust (DST) is a popular investment option for a 1031 exchange. For many investors, DST Replacement Property Interests offer the opportunity to exchange into properties that would otherwise be beyond their reach—and enjoy a predictable income stream without any landlord obligations.
The appeal of DST 1031 investments is that they allow multiple investors to purchase ownership interests in institutional-quality properties like apartment complexes, office towers, and retail centers. However, investors considering a DST investment should be aware of certain limitations.
Internal Revenue Code §1031 provides real-estate investors with a powerful tool known as a “1031 exchange.” What does it do exactly? It allows investors to hold on to gains they’ve made from their real-estate investments without having to pay taxes on the gains. That’s pretty sweet.
Our previous blogs on 1031 Exchanges focus mostly on real property, or real estate. However, the Internal Revenue Code (IRC) 1031 also covers what is dubbed “personal property.” In other words, property held for investment and/or business purposes, but that isn’t real estate, is also eligible for 1031 exchanges - at least for the current time.