Understand and Optimize Real Estate Holdings
Ensure Current Holdings Fit in Your Strategy -
Real estate can possess many attributes that make it a desirable investment including: regular cash flow, opportunity for appreciation, a lack of direct correlation to the capital markets, tax benefits and more. Unfortunately, the characteristics of a real estate holding rarely keep up with the changing needs of the owners. As such, there comes a time when one must adjust the portfolio based on their current or future needs – shifting the focus to income generation, estate planning or beneficial tax treatment as the investor ages or looks to transition the properties to beneficiaries. When a real estate portfolio adjustment becomes necessary, our team works alongside the investor to maximize the proceeds received from the sale of their asset. Drawing upon our network of industry specialists, we identify the highest and best use of the asset and implement a plan to realize it. Furthermore, we employ tax-deferred exchanges to preserve the value of the investment while repositioning the proceeds into real estate holdings more suited for the client’s needs.
Develop Investment Strategy
Know Where You Are Going & How Real Estate Can Get You There -
The Real Estate Transition Solutions approach is grounded in understanding our client’s financial objectives and positioning assets that are best suited to realize those objectives. Often investment real estate is acquired because an opportunity presents itself, assets are inherited or a property meets certain objectives during a previous chapter of life. However, as time marches on, rarely do investors regularly review these holdings for compatibility with their financial objectives – especially as investor’s objectives change in the third and fourth quarters of life. At Real Estate Transition Services, client engagement begins with understanding our client’s financial goals, where they are in life, as well as what their key issues and considerations are. We develop an overall strategy with the client, followed by evaluating their current holdings and determining what is consistent with their objectives and what is not. Common considerations we address with clients are:
- Income stability
- Increasing income
- Tax deferral and reduction
- Access to capital/liquidity
- Estate planning
- Hedging inflation
Staging Property for a Successful 1031 Exchange
1031 Exchange Overview -
Thanks to IRC Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new real estate holding and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”
1031 exchanges allow our clients to defer capital gain taxes as well as facilitate portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is crucial to be familiar with the exchange process and timeline. Our deep experience with exchanges, existing working relationships with all parties involved in the process and exposure to reinvestment opportunities not available to the traditional real estate owners allow us to facilitate a smooth transition for our clients.
Mechanics and Timeline of a 1031 Exchange -
The 1031 exchange follows a fixed criteria and rigid timeline that is notorious for tripping up ill-prepared or uninformed investors. To qualify for an exchange, property must be held for “investment or business purposes.” While the definition of investment purposes is broad, we work hand in hand with tax advisors and real estate attorneys to support our client’s classification of their property as such. Furthermore, as stated in the IRC language, the property to be sold must be exchanged for that which is “like-kind.” Over the past 30 years, the definition of “like-kind” has expanded through case precedent to encompass all real estate held for investment purposes. However, it should be noted that there are legal structure considerations such as the exclusion of REITs as “like-kind” to directly owned investment real estate. Lastly, the exchange must be executed within a rigid timeline consisting of the following dates after the sale of the original investment property:
1. Within 45 calendar days of the transfer (e.g. sale) of the first relinquished property, the exchanger must identify the replacement property to be acquired.
2. The investor must close on the replacement property within the earlier of 180 calendar days after the date on which the exchanger transferred the first relinquished property, or the due date (including extensions) for the exchanger’s tax return for the tax year in which the transfer of the first relinquished property occurs.
We are very familiar with the potential pitfalls surrounding the exchange process and work together with our clients to ensure both the exchange criteria is met and the timeline adhered to.
Identifying Exchange Roles and Responsibilities -
Execution of a successful exchange requires the use of specialists including Qualified Intermediaries, tax advisors and attorneys depending on the nature of the exchange. We have built a robust network of specialists who deliver exceptional service to all our clients when called upon.
Realign Investment Holdings
Proceed Options for Transactions & Liquid Assets
Often the main driver of a real estate transition is realigning our client’s investment real estate holdings with their financial goals. We present a wide variety of investment options to our client’s so that a customized solution can be pursued with the proceeds. For example, through our network within the commercial real estate industry, we assist clients in identifying direct ownership properties to be exchanged into, including triple-net lease properties and "value-add" properties with some of the nation’s most highly regarded real estate sponsors. Furthermore, while we recognize and support maintaining the real estate asset class and thus enabling tax deferral, we also present market-based, insurance, and securitized real estate options through our affiliate, R.W. Bowlin Investment Solutions. (Note, the solicitation and offering of securitized investments must be FINRA compliant, as such all communication regarding securities is conducted through a separate legal entity). If you are interested in learning more about investment opportunities that are consistent with your investment objectives, please do not hesitate to reach out. For further detail regarding reinvestment opportunities that may be available to you, please visit: Exit Opportunities