Archive for commercial real estate training
Savvy Commercial Real Estate Investors are Sitting on Their Cash for Now
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Greetings from Albuquerque, New Mexico
‘A whole lot and a whole not’ sums up the last few weeks here on the blog.
How long has it been? Well, it has been one heck of a ride for the last few months. I have been attending a few luncheons, a couple seminars, and a handful of meetings and they are all saying the same thing:
‘Cash-rich investors are sitting on their money waiting for commercial real estate to hit bottom.’
Once it does, the assumption is the investors will jump in with both feet. This is what is called vulture investing. You can read more about it HERE.
The belief is that there will be a dramatic tipping point sometime late this year or early next. The assumption is that this ‘tipping point’ will start with the banks doing a mass liquidation of assets that are on their books. This huge sell off will be a mountain of discounted assets in order to move the assets quickly. This will led a domino effect that will dramatically pull values down even more. I guess the real question for me is what is taking so long? We are seeing a little bit of liquidation here and there but not what everyone was expecting.
Although there is some positive press that things are turning around. Most experts don’t buy it. What do you think?
When a question like this comes up, I start following the money. The problem is the money is not going anywhere….hence…there is my answer.
Until next time…..rob
What is A 1031 Tax Deferred Exchange?
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If you are a real estate investor, you can’t afford to be without the 1031 tax deferred exchange in your property buying and selling arsenal.
In simple terms, this process, executed with the help of a mediator, allows you to avoid paying capital gains tax (for now) when you sell a commercial property. The catch? You have to put your profits into the purchase of another (bigger) property within a certain period of time.
Want more details? Read on!
How Can A 1031 Tax Deferred Exchange Work For You?
A tax deferred exchange is a simple method that a property owner employs in a property trade without having to pay the federal tax on the transaction. Generally in an ordinary sale transaction, the property owner is taxed on any gain he or she realizes by the sale of the property. But in exchange, this tax is deferred until some future time when the acquired property is sold. Authorized by the Section 1031 of the Internal Revenue Code, these tax rules are sometimes referred to as 1031 exchange rules. The transaction however must carefully meet the section 1031 rule set and must be structured in such a way that the transaction is in fact an exchange of one property for another and it is not a taxable property sale.
When you look at it, the tax deferred exchange is actually an investment strategy that people are often not aware of. One of the misconceptions on the 1031 exchange rules is that an exchange requires 2 parties who want each other’s properties. However, in reality though, such two-party swaps rarely occur. Today, this exchange can be accomplished by involving four principal parties that include the exchanger, the seller of the replacement property, the buyer of the relinquished property and an intermediary. These parties often do not even know each other and may be located in different states. Furthermore, the exchange properties do not have to close at the same time. As long as the 180-day deadline has not been met, the exchange is considered legal and thus tax-free.
You Need To Know And Understand The 1031 Tax Deferred Exchange Rules Before You Sell Your First Property
It is clear that 1031 exchange rules have the advantage of shielding the exchanger from incurring immediate tax liability. Upon the death of the taxpayer, the deferred tax is forgiven and the taxpayer’s estate never has to repay the ‘loan’. A tax deferred exchange nevertheless carries the disadvantage of additional fees for entering into the agreement. These costs could be attorney’s fees, accounting fees, intermediary and accommodation titleholder’s fees. The taxpayer is also not allowed to use the net proceeds from the property disposition other than in real property re-investment.
1031 exchange rules offer a taxpayer the benefits of tax deferment. However, this should not be the only reason to enter into a deferred exchange. Business decisions like the need to consolidate investments, increase cash flow, relocate a business investment, obtain greater real property appreciation and eliminate management problems should play the dominant role. When all of the above factors are considered, one may be in a better position to engage or disengage from a tax deferred exchange.
For More Information
If you need more information on 1031 Tax Exchangers, drop us a line and we will let you know who we recommend. We can also help put you in touch with an agent if you are looking to sell or buy a property.
Just let us know how we can help – and best of luck with your first 1031 exchange!
The Best Investment Advice …. “know What the #$%@ You are Doing….”
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There are so many opinions on what the best investment vehicle is….there are so many cliches on how to invest …..there are so many books on investing strategies ……and on and on. Why? Well….because almost everyone is asking the same question and everyone has a different opinion. The real dilemma is that there is not one answer….although any guru will want you to believe that there is…. and they do their best to convince you they have the answer. Seen any ads on gold lately?
Sitting in the audience not too long ago, I heard a speaker/guru that I respected very much say the stupidest thing. I heard him say “….investing in the stock market is a dumb thing to do because there is so much risk.” Granted he was selling his “silver bullet” program but….what a dumb thing to say. I know so many people that have done so well in the stock market in good times and in bad that I know the stock market is a great place to invest…..I say what with caution…keep reading.
I have also heard people say that real estate is a bad investment. When we all know people that have done well in real estate as well…whether the market is good or bad….again…I say that with caution….keep reading.
Of course there are horror stories for any investment vehicle…whether real etate, stocks, businesses, etc. BUT….there is one very clear statement that makes all the sense in the world in whatever investment vehicle you are investing in:
“Know what the hell you are doing…understand what it is that you investing in.” – me
In other words, have a good understanding of how your investment vehicle works. If you don’t understand it, don’t do it unless you are willing to lose. Then…if you lose….don’t #$%@!$ about it.
What I am saying is a knowledgeable investor will understand the risk, do what he or she can to mitigate it and roll with the punches of the investment. A savvy investor will do all this while taking advantage of the cycles that ALL INVESTMENTS go through.
Savvy investors know that losing money is the cost of doing business….but the key is making more than you lose. The way great investors do this is by spending the time educating themselves, seeking advice from successful investors and professionals, and mitigating risk.
Investing with little or no knowledge of what you are doing is what I call “Vegas Style Investing.”
So…then next time someone on stage or TV tells you their opinion on investing….take it with a grain of salt. Remember there are success stories with almost every type of investment vehicle as well as horror stories. The key is to understand the investment and know what the heck you are doing.
Until next time…..rob