Diversification Through UPREITs: Expanding Your Real Estate Portfolio
One of the most important long-term steps for real estate investors is diversifying their portfolios — the act of broadening their exposure to various markets and minimizing risks from underperforming sectors. Plenty of options are available, and one emerging strategy is investing through an umbrella partnership real estate investment trust (UPREIT). In what ways can such an investment vehicle help you improve your overall diversification strategy as an investor?
The Risks Associated With UPREIT Investments
Umbrella partnership real estate investment trusts (UPREITs) offer a multitude of benefits like tax deferral and passive income, making them appealing to modern investors. This is all made possible due to the 721 exchange and the nature of the UPREIT structure itself. However, like any other investment vehicle, UPREITs have their own set of risks that investors must be aware of. Understanding these challenges and pitfalls helps you prepare and minimize their effects.
UPREIT Conversion: Tax Implications Investors Need To Understand
Contributing property to an umbrella partnership real estate investment trust (UPREIT) allows you, as an investor, to own operating partnership (OP) units. This transaction also results in the nonrecognition of gains and losses, so you defer capital gains taxes as long as you hold the OP units. However, liquidity needs may change, and you may need to convert your OP units to REIT shares so you can later sell them.
Depreciation and UPREITs: How Investors Can Benefit
One of the most powerful tax advantages investors can employ is depreciation — the process of deducting a portion of a property’s value over the years, even though the asset is actually appreciating.
Benefits and Drawbacks of Investing in an UPREIT Structure
An umbrella partnership real estate investment trust (UPREIT) is a powerful investment tool that many modern investors are finding appealing. This structure is an operating partnership (OP) owning income-generating property, with the REIT having the controlling interest and investors as limited partners. As you contribute property to the UPREIT, you gain OP units and earn dividends on a regular basis. Since the REIT controls the operations and management of the underlying properties, investors have hands-off involvement and earn without any added effort.
