Helping Clients Use Investment Property for Retirement, Income Diversification

Posted May 8, 2023


David Wieland, CEO and co-founder of Realized, recently provided Family Wealth Report with his perspective on diversification strategies, with a focus on baby boomers with significant real estate holdings. Read the complete article using the link above or review this recap.

Many baby boomers (the generation born between 1946 and approximately 1964) have invested in real estate, often accumulating significant holdings and personal wealth. Boomers came of age and began investing during a time of extended favorable economic conditions. As property values rose over time, boomers may have continued their focus on real estate investments as opposed to equities. Real estate is sometimes considered more attractive than stocks because it may offer an income stream, tax advantages, and a tangible presence that stocks do not duplicate.

However, as boomers enter or approach retirement, they may encounter challenges with their real estate portfolios, including concentration risk and tax exposure. For example, if the investor has concentrated investments in a few properties, a few sectors, or a few geographic areas, they may risk losses if the market drops.  

Furthermore, real estate investors may face substantial capital gains tax obligations, as well as depreciation recapture levies, when they decide to sell. Investors may want to consider using a 1031 exchange when they want to dispose of investment properties. Using a 1031 exchange can allow the deferral of capital gains and depreciation recapture taxes, but the tactic is complex and execution must be aided by the use of a Qualified Intermediary.

In addition, real estate investors nearing retirement may consider transitioning from active management to passive real estate investment options like DSTs (Delaware Statutory Trusts), REITS (Real Estate Investment Trusts), real estate mutual funds, exchange-traded funds, and real estate syndications.

Overall, boomers should review their portfolios for present and future value, considering taxes, risk exposure, and diversification.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure.

Costs associated with a 1031 transaction may impact investor’s returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

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