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Crowdfunding is rapidly gaining popularity as the must-have investment option. In 2015, real estate crowdfunding was expected to grow into a $2.5 billion industry. According to David Drake, founder and chairman of The Soho Loft Media Group, real estate investors have started to value crowdfunding as an avenue that helps stabilize and diversify investments. As the real estate crowdfunding industry continues to grow, investors are more apt to embrace real estate crowdfunding instead of traditional investment options because of the higher rate of returns, ease of access, and limited liability.
If the stats weren’t enough, here are seven definitive reasons why you should start investing through real estate crowdfunding.
Offers more control
It’s natural to want control over your investments and real estate crowdfunding does exactly that. Unlike real estate investment trusts (REITs), investing through real estate crowdfunding gives you the power to control which real estate properties you invest in. With real estate crowdfunding, investors are presented with all relevant information about the property prior to investing. They are even encouraged to monitor the progress of each project over the term of the investment.
Promotes asset diversification
If you want a diversified portfolio, then real estate crowdfunding is right for you. Previously, investors would make a large investment in a single project, leaving them susceptible to a higher risk. With real estate crowdfunding, investors can now contribute smaller sums of money into multiple projects, thus diversifying their risk.
Lower investment buy-in
There are many potential investors who don’t have ready access to large amounts of capital for investments. Traditionally, investing in real estate was an opportunity reserved for the wealthy. “Investing in commercial property is generally very capital intensive,” said Heather Schwarz Lopes, chief strategy officer of Early Shares. “Now investors can start at a lower price level,” said Lopes. Today, real estate crowdfunding provides more opportunities for those who have $5,000 (the minimum for many crowdfunding sites) that they would like to invest.
Latest path to passive income
The best type of investment is one that requires minimum effort to earn funds. Real estate crowdfunding has a significant advantage over the direct approach of investing. Direct investing requires that the investor be directly involved in the day-to-day operations of a project. With real estate crowdfunding, an investor simply invests in a project and enjoys the benefits of passive income, which includes monthly interest payments.
Access to more properties
Traditional investing practices don’t allow investors any kind of access to the projects they invest in. Real estate crowdfunding gives the investor access and updates to diverse, profitable properties. With the growing popularity of online real estate crowdfunding platforms, new screened and unscreened properties are added on a daily basis.
Traditional investing requires additional funds for investments and has no protection with respect to the financial liability of the investor. Through traditional investing, investors are required to pay the direct costs and any liabilities incurred as a result of the investment. With real estate crowdfunding, the financial liability of the investor is limited only to the extent of their investment.
Higher rate of return
In traditional real estate investing, there are many players handling multiple aspects of the deal. With real estate crowdfunding, investors directly invest in a property. This reduces the associated fees, allowing for additional profits that go directly to the investor.
The rise of real estate crowdfunding has paved the way for a new and more accessible form of investing. More “Average Joes” are getting into the game and investing without having hundreds of thousands of dollars in their bank accounts. With investing minimums as low as $5,000, a higher rate of return, and more diversity in properties available than ever before, there’s no reason not to invest. If you’re still a laggard and investing through traditional avenues, get with the times.
After ages of institutional disadvantages, women today are quickly gaining power in the workplace. Time and again, they’ve proven their worth in academic and professional settings, and in all tiers of business have made clear the importance of female representation — leadership included.
When I began as a secretary in the 1970s, I was among a minority of women in the real estate industry. With hard work and luck, however, I was able to climb the corporate ladder and build a successful business from scratch, forging the way for a new generation of female entrepreneurs.
The environment in which I did that — New York City — has always been a progressive microcosm. Here, where the country’s best-paid family-leave law was just passed, some of the nation’s finest female leaders and entrepreneurs are flourishing, thanks to a combination of ambition and diversity and growing cultural support for equality.
Still, as a born and bred New Yorker, I admit that the rest of the country remains a bit of an enigma to me. In fact, I have come to realize that my own success in the real estate industry may be an outlier. According to a survey of female members of the Urban Land Institute (ULI), a multidisciplinary real estate organization with more than 37,000 members, there exists a deficit of women in our industry’s executive roles.
Women in real estate
My wish is for all women to have the opportunity to advance in the workspace if they have the talent and desire. But, according to ULI’s survey, there is still a clear gender imbalance, especially when it comes to leadership.
The survey found that women make up about 25 percent of ULI members but represent just 14 percent of CEOs. Female leaders are also more likely to be at the helm of smaller firms than larger ones. ULI speculates that this is likely because roadblocks in larger organizations box them out of senior roles, leading them to either start their own businesses or leave for smaller firms where less bureaucracy prevents their advancement.
Fortunately, the women surveyed displayed great optimism about their careers: 70 percent said they felt they were on track in their career advancement, or else were moving even more rapidly ahead than expected.
Supporting women’s career growth
Clearly, women in real estate are ambitious, talented and hungry for advancement: Roughly 68 percent of those surveyed said they aspired to hold executive positions in their companies or own their own business. In New York City, I’ve found, conditions are right to encourage such female success.
But the fact is that many women still face obstacles in seeing their ambitions come to fruition. That is why I believe we need the right support to develop their talent, to carry them forward unhindered by “gender” limitations.
ULI makes some astute suggestions for real estate companies to help women in the industry not just succeed, but earn positions at the top of the totem pole. Here’s what they propose:
1. Accelerated learning
One of the most important requests by women surveyed was the provision of visible and challenging assignments to accelerate on-the-job learning. When high-profile assignments and job openings arise, organizations should think and act with an eye toward both talent and diversity, then challenge those with potential.
Giving female employees responsibility and testing their ability to act under pressure opens doors for those that might not be obvious choices, giving them the chance prove their worth and exercise their skills.
2. Culture creation
Another important factor is an inclusive workplace culture, within which both men and women have the tools to succeed. Inclusivity starts from the top, with leaders taking actions to include women as mentees and to demand the same quality from all, regardless of gender.
Already, many millennial women report being paid and treated as equals with their male counterparts. Since mid-career women are more likely to report their careers stalling, it is imperative that this culture extend to women of all ages.
3. Talent mindset
According to women in the industry, having managers who coach them on the job is more beneficial than formal female leadership programs. Programs as stand-off interventions — while potentially helpful — aren’t considered as important to career growth as internal attitude and mentorship.
For example, a senior-level executive advocating for a woman goes much further than a simple HR training session. Managers should practice objective hiring and mentorship to challenge those with raw skills and ability.
4. Flexibility for all
The ULI survey found that the women surveyed indicated workplace flexibility as a sign of trust by senior leadership. These women wanted to be trusted with flexible working hours while also being measured on results; in the survey, this goal was even more important than family leave.
Work flexibility allows both women and men to dictate their own schedules, to optimize work time and family time without sacrificing quality in either. As long as these offerings don’t put an undue burden on other colleagues or lower the performance bar, those able to take advantage of it will have ample room to thrive.
Internal mentorship can be crucial in allowing women to hone their leadership skills.. But challenges persist in regards to gender dynamics that may impede coaching’s efficacy: For example, a male superior may feel uncomfortable critiquing or bonding with a female inferior, and vice versa.
Women may want to turn to female superiors, then, for advice. But as long as men occupy leadership roles, they shouldn’t hold back from offering support. Organizations can also offer women the opportunity to form external networks fostering professional relationships with men and women outside their firm. Both outsiders and insiders can become future work connections and provide valuable feedback to working women.
Women in the real estate industry have reason to be both optimistic about and hopeful for the future. Progress comes when culture shifts, equity is sought,and respect is earned; every year, more women are earning advancements due to organic change. I’ve witnessed this first-hand, and am confident that women around the country are capable of the same success.
Investors in real estate are not quite the same as landlords. Investors take more business risks and often times get better results and profits. It’s the big leagues of property investments.
The good news is that anybody can join the big leagues. Real estate investment entails more risks than merely leasing and overseeing a house in the case of landlord ownership. But the risks are worth taking as the result of good investment far outweighs any risks.
A landlord is anyone who owns land – a house, apartment or what we generally call real estate. He or she generally rents those houses and apartments to tenants. Meanwhile, a real estate investor is much more – clearly you still own houses — but you don’t have to wear all the hats that come with being a landlord.
I have highlighted six different reasons why it is wise and expedient to metamorphose from being just a landlord to a real estate investor.
1. Investors avoid the hassle of being a landlord.
Marketing the property, vacancy showings, tenant screenings, lease negotiations, rent collection, tenant communication, repairs and emergencies, bookkeeping, coordinating insurance policies and more – these are the hats on a landlord’s head.
Investors exempt themselves from the daily grind and responsibilities and focus more on the business and profit making part. No need worrying how to make a plumber show up on Sunday afternoon. An investor would focus on constant research and smart decision-making.
To do this requires hiring a property management company (PMC) to advertise, negotiate with clients, maintain and generally oversee property and assets on her behalf. This in the short-term might seem like great expenses, but if only to rest from the hat wearing it is worth it, plus a few more advantages as you will see.
2. Investors have the benefit of focus.
Imagine having all the responsibilities above and doing it long-term — which is what many landlords do. It could get really exhausting, to avoid using a stronger word. Investors focus on one thing, and this increases their profit in the long-term and also in the short-term, depending on how quickly they can make a property more profitable.
3. Investors avoid indigent tenants.
Almost every landlord has to face this at some point, especially in economies that are dwindling. Let’s face it, so many people all over the world are living below the poverty line. Most of these people find it extremely difficult to pay their rent when it is due. And many times these tenants would not vacate the premise, which means you can’t get a new tenant. This usually leads to the issuance of quit notice, or even as far as using a court injunction, to get them to leave.
An investor can’t be bothered by such challenges. The firm manages all of that and reports to her. And in the event that a property is not profitable, she can sell it, and move on to better investments.
4. Time, leisure and early retirement.
Good investors acquire properties that have flexibility. This includes the cost of hiring a management firm in their cashflow assumptions so they can vet out any financial deal breakers.
Because of this early planning and wise decision making they can have more time to themselves. They can enjoy vacations and travel, and it won’t affect their jobs, because they limit themselves to about 20 percent of what they would have done as landlords.
Landlords might even be so restricted that they have to live in the same property with the tenants to keep an eye out. Investors on the other hand, keep charge of their time versus money balance.
5. The better end of asset appreciation.
The valuation of property tends to increase over the years as the net operating income of the same property augments as a result of increase in rent and reduction in the maintenance cost. The latter is assured through effective property management work. Investors need only to find the best management firm they can.
6. Investors are in it for the money.
Aren’t we all? Landlords and investors alike invest in property to make profit, but investment is a less tedious way of making money.
To be a real estate investor, you only need to have business at the forefront of your mind. You buy an asset with the intention to offload such property for good profit as soon as it is profitable. This canning ability is called flipping, and it is achieved by smart real estate investors by buying undervalued assets ,or those that are not in huge demand marketwise.
Securing a commercial lease — office, retail or industrial space — is a complicated process that requires much time and effort. As a business owner, there are several different types of property owners you may encounter in your initial search and even during your occupancy, ranging from small individual owners to multi-billion dollar REITs.
Working efficiently with each kind of owner requires a basic understanding of their preferences and priorities. Here, we’ll highlight a few key characteristics of each group:
1. Mom and Pops.
Mom and Pops are owners with smaller portfolios who obtained property as a primary investment. They are not as formal in business practices as other types of owners. Often personally vested in their space, they favor tenants who will treat their space well.
Usually straightforward and easy to deal with
Great for those who desire a close landlord/tenant relationship
May be flexible on terms for the right tenant
Best fit for smaller businesses with simple needs
Communicate with a personable and warm manner
Highlight what makes you a good tenant
Convey your willingness to take ownership of the space
Share creative ideas on how your business can indirectly benefit them
2. Family investors.
Unlike Mom and Pops, family investors are “real estate families” who have amassed a sizable portfolio over tens or even hundreds of years. The tenant/owner relationship may not be as intimate but nonetheless, family owners are still materially involved in the leasing and management of their properties.
Still operate with a personal touch and often handle leasing in house
Generally cash flow driven; prefer stable tenants over the highest possible rent
Have intimate knowledge of every building in their portfolio
Tend to have long term tenants that they have accommodated over many lease periods
Best fit for small to mid-size businesses who are looking for a landlord that is willing to build space and accommodate their short-term growth needs
Check out other buildings within their portfolio to get a better sense of what they have to offer
Be warm and personable because it’s not only the bottom line that drives these owners
Clearly communicate your needs and limitations; they will do the best they can to accommodate
Be prepared to put down a significant security deposit if you don’t have strong financials
3. Management companies.
While technically not an owner, management companies act on behalf of the owners that hire them. For the purposes of leasing and day-to-day property management, they are the de facto owners. Management companies typically have access to a large portfolio of properties with a wide variety of options to fit any business needs.
Very knowledgeable and can accommodate a wide range of needs
Allocated budgets for building improvements and capex
Offer standardized and less flexible lease terms, especially for smaller tenants
Best fit for businesses that have established credit, as these owners often have specific requirements and operating rules
Expect to sign a 5+ year lease
If you are a high profile tenant who’s well recognized or generating a lot of buzz, use this to your advantage, as these landlords like having notable tenants in their roster
4. Real estate developers.
As the name suggests, real estate developers develop and acquire office, residential, hotel, retail and mixed-use properties. The properties they construct are typically Class A buildings designed by award winning architectural firms and feature some of the best amenities offered by any landlord.
Extremely well maintained common areas and large lobbies with strong security
Looking capitalize on the quality of their buildings and generate the highest rents in order to maximize property value
Often limited to major markets such as NYC, SF, LA, Chicago and Houston
Usually more than willing to build space for long term tenants or provide a significant tenant improvement allowance
Best fit for companies looking for premium space
Plan well in advance as deals can take a long time to close
Ask for specific details and changes to the space that will help your business
Use time as a negotiating factor; many new buildings need to secure tenants even before new buildings are completed
5. Institutional investors (funds and REITs).
Institutional investors are money managers who invest in various asset classes, including commercial real estate. Of these investors, REITs (real estate investment trusts) invest solely in real estate properties but most funds will also invest in it as part of a diversified portfolio.
Most assets are Class B+ to Class A buildings that generate strong cash flows for investors
Driven by occupancy rates and margins, not personal preference
You likely won’t deal directly with these owners unless there’s a major dispute, you’re an anchor tenant and/or a large tenant improvement (TI) allowance is involved, but if you do, make sure you cross all your t’s and dot all your i’s. These are not your typical landlords so make sure all of the right paperwork and documentation is in order.
I’ve been hanging out in St. Barth’s and I decided every Monday I’m going to do a show on GrantCardoneTV where I show you real estate deals I’ve bought and why I bought them. This is better than doing any book. It’s going to give you the tools you need to know why you should buy a property and how to buy. You need to know the real estate game because it’s a great way to build passive income and secure wealth.
There is risk in any investment. The only way to reduce your risk is to know what you’re doing. I have a magic touch when it comes to real estate deals, no doubt about it. I’m going to continue to expand my real estate portfolio and as I do, I’m going to be sharing the things I do and even the mistakes I make.
I’ll share with you a deal I’m going over right now. It’s a $20,175,000 price but I will round it off to $20 million to keep things simple. I need to put 25 percent down to get my best debt. I put $5 million down and get $15 million in debt. This is a 75 percent loan devalue. The beauty about real estate is that I can buy a $20 million property for only $5 million.
Of course, I’m speaking in generalities here, I haven’t always put 25 percent down. The last deal I bought was in Boca Raton for $12 million. Usually, I would put $3 million down, but that deal already had debt in it and the expenses could not be paid off so that deal needed $6 million down. It was still a good deal for me for other reasons.
I’ve been doing the real estate thing for a long time. I looked at properties every weekend for five years before getting into the game. My first deal was in San Diego in 1995 for 38 units. My second deal was a month later for 48 units, and my third deal three months later was 92 units. Within about 18 months I had 500 units. Fast forward to 2016 and I have much, much more — nearly 4,000 units.
I’ve never read a book on real estate, nor did I ever have a coach or a mentor in real estate. I got rejected by the first two lenders I went to in California, even though I could have written a check for the deals. They told me I had no experience. I kept at it and the third lender gave me the green light.
You will put 25 percent down if you have good credit and have management experience. The lenders don’t care how rich you are, they’ll say “yeah, you got some money, good” then they’ll look at your credit and say, “yeah you have good credit but so does everyone else.”
Then, the third thing they will say is, “What is your management experience?” They will also ask about your experience in that particular area. A guy who used to have eight units in Tulsa may get turned down for a loan in Florida because he doesn’t know the area.
Before you pull the trigger on any deal, get great with looking at financial statements. Real estate is basically a numbers game. It’s about a certain amount of money coming in and a certain amount of money going out. The difference in this business is that you actually get to use debt. This means you get leverage. Every $100K buys $400K in real estate. Every $1-million buys $4-million. If I bought $1 million in the stock market, I would get $1 million in stock. If the stock market was like real estate, I would buy $1 million in stock and get $4 million in stock.
There are three main things you need to keep in mind today with real estate:
1. Know real estate.
Do you even want to be involved in real estate? If you aren’t sure, don’t do it. You have to know for sure that’s what you want your money in. Know what kind of real estate you want to be in. I don’t do shopping centers or offices — and certainly not houses. I do multi-family, which means basically apartment buildings. I rent 10 to 15-month contracts. I know what I want to do and why I want to do it.
2. Know the market.
Not just location, you need to know the market. There was recently an article written about how New York and San Francisco are already pulling back. I’ve been telling people for a year to stay out of those markets because they are hyper-inflated. They will bust because all bubbles do. Bubbles are pretty and everyone wants to hold it and then POP — everyone loses interest and they go start blowing another bubble. I stay out of markets that blow bubbles.
3. Know the deal.
Finding the deal today is the biggest issue for many small investors. There’s no such thing as a bank owned deal. If the banks got deals, they are calling guys like me. If everyone passes on a deal, it’s not a deal. It’s like if I told you that you can eat everything off my plate after I’ve already eaten all the good stuff off. You need to know what a deal is and what isn’t a deal.
You want to scale, which is something most small investors can’t do. I don’t advise doing multi-family unless you start with at least a $2-million-dollar deal. Otherwise, it won’t produce enough income and is not worth the trouble. If I’m going to get a splinter in my toe, the adventure better be worth it. I don’t want a splinter in my toe because I was eating a hamburger but if I get it running to my naked wife on the beach, the splinter would be worth it. You don’t want to invest in a deal where the payoff is too small.
That’s why I say don’t do anything with fewer than 16 units. Don’t do little. Don’t start early and don’t start small. People hate when I say this. Keep saving your money. You reduce risk not by diversifying but by knowing what you’re doing. Leave alone the high-end stuff that has rents of over $3K and the cheap junk. You want to have an exit plan or you won’t ever get your money out. I invest in places with rents around $1,000.
If you do a $2 million-dollar property you will need $500K and finance $1.5 million. The property will take care of your financing, your expenses, and it should pay you about $50,000 a year. If that sounds scary, consider other options — I know if I could do it all over again from the beginning I would have just ridden with a guy like me. I’ve got a brother and a sister, and some close friends that came in and wanted in on some of my deals. They get the leverage where it’s my name on the debt, my experience and my management company.
For 25 years, I have allowed only close friends and family to invest in my real estate deals. I recently put 460 units, worth $55 million, under contract to purchase and for the first time offered investors outside my family to come into these deals. The entire investment required was filled in two weeks.
I am going to open up my next deal to accredited investors. With many of you reaching out to me interested in investing in apartments as a way to protect capital and create passive income flows, I’m opening it up to accredited investors. I can’t open it up to everybody just yet because of some regulations, but I’m working on it. Accredited means you need an income of $200K a year for the last two years or a million dollars in net worth, excluding your home. The minimum investment is $100k and the maximum is $1 million.
Apartment investing has been extremely lucrative for me over the last 25 years. There are no promises or guarantees this can or will continue, but you can see where I am putting all my money. If you don’t yet make $200K a year, get on my Playbook today. Before you get in the real estate game you have to learn to increase your income — there’s no way around it.
Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” Your money doesn’t go as far — simple. The $30k you made at your job 10 years ago and lived comfortably with barely gets you by now. You can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day.
The government cannot save you or your family, or ensure your financial freedom. Set your mind right about earning money. More cash = more freedom! Money itself won’t make you happy, but it will give you the ability to provide a better life for yourself and your loved ones. You must invest with income streams that give you positive cash flow, learn to leverage your debt, learn to handle inflation and take control of your physical assets.
Do you currently have commercial real estate assets in your investment portfolio? Are you scared to have your money in the stock market (like I am) but also fed up with almost no return on investment with your money at the bank? Do you instinctively like the idea of being invested in income producing real estate with results you can see?
Here are eight reasons why investing income producing real estate is an excellent choice for protecting and growing your wealth:
1. Positive cash flow.
One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.
2. Using leverage to multiply asset value.
Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.
3. Low-cost debt leveraged to multiply cash flow.
Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.
4. Hedge on inflation.
For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.
As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.
5. Capitalize on the physical assets.
Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.
6. Maximizing tax benefits.
The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)
7. Asset value appreciation.
Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.
8. Feeling the pride of ownership.
The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?
No one can ensure the future of rental of income properties’ values, but this asset class seems positioned to continue to benefit from many other socio-economic issues that I will save for another time.
Grayson and Wayne are partners at Tricorner Yards, a multi-use real estate development project. The two amassed a sizable tract of waterfront property in the Tri-Corner area and successfully rehabilitated and developed what were once rundown shipping yards into a bustling urban center. With their work complete and the properties fully leased or sold, Wayne and Grayson want to move onto the next chapter in their lives; and so, begins the tale of tax-deferred exchanges.
Wayne’s Umbrella Partnership Real Estate Investment Trust (UPREIT)
Wayne is at the point in his life when he would like to be able to move away from daily management and begin enjoying the fruits of his labor. His children have not expressed any interest in taking over the family real estate empire, so he’s willing to give up the property. However, Wayne is not interested in a traditional sale. He does not want capital gains taxes to diminish his investment in the next deal. Given these facts, his tax advisor presents a solution with the potential to address both of Wayne’s concerns.
The advisor recommends that Wayne contribute part of his interest in Tricorner Yards real property, specifically the institutional grade property, to an UPREIT in exchange for securities known as operating partnership (OP) units or limited partnership (LP) units with a value equal to the contributed property.
Relying on the partnership rules, the exchange is designed to be a non-taxable transfer. Tax should not be due until Wayne exchanges his OP units for real estate investment trust (REIT) shares or cash. However, if the OP units are held at death and receive a step-up in basis, the built-in gain could be wiped out altogether – at least up to the date of death value of the OP units.
With this strategy, Wayne does give up control and could also be subject to an unplanned tax bill if the REIT were to sell the Tricorner properties. But Wayne assumes – and is comfortable with — this risk in exchange for the diversification, economy of scale and management offered by the REIT.
Grayson’s S. 1031 Exchange
Grayson is a bird of another feather. He intends to remain actively involved in the development business and has already identified his next project. He too has good tax counsel, who has suggested an S. 1031 exchange in order to maximize the cash available to roll into the new deal.
An S. 1031 deferred exchange requires Grayson to meet a specific timeline, beginning on the date he sells the Tricorner properties, or he’ll face immediate income taxes on the sale. However, Grayson does not want to wait until his current Tricorner properties are sold before purchasing his next property. He has already identified a fantastic opportunity with a highly motivated seller and does not want another buyer to swoop in and steal it from him. Luckily, the S. 1031 exchange can be done in reverse.
The reverse exchange allows Grayson to designate a qualified intermediary, who takes title to Grayson’s new property after the purchase and parks it until the sale of his Tricorner properties closes. If successful, Grayson’s reverse exchange should preclude recognition of capital gains.
Holy tax-deferred exchanges.
While our real estate dynamic duo is fictional, their tales have real-life applications for the following types of people.
Real estate investors, who wish to diversify their holdings without paying an exit tax;
Real estate owners, who are ready to move out of the daily management of properties; and
Owners or investors looking for the next project and not an immediate tax bill.
Both Wayne and Grayson were able to use specific sections of the tax code to avoid the immediate recognition of income on the sale or exchange of their Tricorner properties, but we should emphasize that these strategies ultimately lead to the same ending. Eventually, Grayson and Wayne – or their heirs — can count on a tax bill.
If the cape fits…
How do you determine which exchange is ideal for your situation? Consider the following questions when working in conjunction with tax and legal counsel.
Do I, or does a member of the family, wish to continue daily management activities?
Am I comfortable giving up control?
Will this be my last exchange or just one in a series of exchanges as I move from one project to the next?
While not an exhaustive list, these should provide clues as to which path to consider – UPREIT, S. 1031 exchange or reverse S. 1031 exchange. And while deferral can be an important tool, you should carefully weigh the tax benefits of the transaction against the long-term strategic plans for your assets and your family.
Learning how to network effectively is a must if you work in real estate. After all, networking is fundamental to the success of any real estate business. When I consider this fact, always I’m surprised by the number of developers and realtors who don’t take advantage of incredible networking opportunities at their avail. What follows is a list of networking tips and suggestions which have been useful for me over the course of my real estate career. In the world of real estate, we’re are looking for ways to connect.
1. Surround yourself with a great team.
Having a team that is comprised of competent and trustworthy people is critical to the success of any real estate business. As a real estate developer, I am only as good as the people who surround me. In addition to professionals with whom I work and collaborate internally, I also rely on relationships I’ve built with individuals and firms in my community. Establishing connections with complementary businesses — real estate industry vendors with whom you don’t directly compete — is an essential networking tool. Make it your goal to identify and meet a network of vendors to whom you can refer clients, and vice versa. It will do wonders for your professional network.
For example, when developing a new property, I rely heavily on a master architect and contractor. An incomplete set of drawings can lead to cost overruns and construction delays. While no contractor is perfect, finding a contractor you trust is the only way to complete projects successfully. Developing a relationship with an architect who is familiar with local zoning codes is essential, too. Whether an architect and contractor work well together can make or break a project. If they do not work cohesively, construction delays can result and will inevitably eat into your planned operating income.
Similarly, if your client is unfamiliar with the mortgage lending process, direct your client to a trustworthy lender who can help navigate what is often a stressful and important financial decision. By maintaining good banking relationships, developers can improve your chances of engaging in a successful transaction.
2. Create a professional website and blog.
Treat your real estate business as if it were a digital media business and go paperless as much as possible. With regard to visual appeal, my own personal belief is that every house tells a story — all too often, however, the the character and story of a home is lost in its listing description. In the spirit of keeping readers well-informed, a good blog needs to publish new, original content on a regular basis. Increasingly, a person’s first impression of a home doesn’t form at the front door, but rather, on the computer screen before the showing. Make use of local imagery; don’t rely on stock building and property photos. In many ways, you’re not just selling a house, you’re selling an entire geographic culture. Showcase the best that your area has to offer by publishing high-res photos of local town landmarks and familiar sites. Successful real estate is often the product of great photography.
It also helps to be an expert and a scholar of your industry. Know what real estate apps people are using and stay updated on new developments, innovations, and trends in the industry. What real estate blogs do your clients read? What hashtags are being used at the conferences you attend?
3. Social media.
Social media has become a powerful tool to connect with your clients; it also creates a great opportunity share your knowledge and expertise with your clients in an easily sharable format. Regarding social media, respond to all inquiries, emails, and messages across all channels swiftly. Interact with users, share good press, and promote your properties. Make yourself easy to contact and be an active user on multiple channels. Use Facebook and twitter to share your listings and promote your properties on major real estate aggregators like Zillow and Trulia. Be sure to keep your voice authentic–you want to avoid coming across as if you are selling something.
4. Attend conferences and industry events.
Remember that real estate networking events are about engaging with other professionals in your industry. Treat conferences as opportunities to learn about new market information and innovations your colleagues are using. Share conference thoughts in real time on social media. Don’t just network within your industry — diversify. If you have been living and working in your area for a long time, you might already be buddies with the other realtors in your area. Try to expand your geographical network by engaging with influencers from other geographical areas. These new connections can offer new ideas and strategies. Also, make a point to look up your past connections for coffee or drinks. It is a great way to maintain and strengthen your relationships.
5. Engage in your local community.
Knowing how to build rapport with others and relate to different types of people is key when it comes to networking. For real estate developers, establishing a consistent presence within your own community is important, too. I can’t overemphasize the importance of being an active participant in your community. Community involvement will not only expand your client base, it will strengthen your knowledge of the neighborhoods where your properties are located and of the people who live in them. Real estate professionals can develop their community presence in a myriad of ways. Here are a few ideas:
Local sponsorship. Sponsor local festivals, little league teams, or school events. Signing up as a community sponsor often results in securing a spot for your business insignia on T-shirts, program pamphlets or flyers. This is great for branding and business recognition.
Volunteer. Spend several hours each month donating your time to local groups and organizations. If you want to keep within the real estate theme, volunteer for a local chapter of Habitat for Humanity, or reach out to an affordable housing advocacy group in your city. This is a great way both to expand your network and have a positive impact on your community.
Local Radio / Media. Reach out to your local radio station. Public radio shows always need content. It’s likely that you can help them out by lending your voice to a show or podcast segment.
Education. Consider partnering with local schools during career days; it’s an engaging way to generate real estate leads. If any local colleges or universities offer real estate courses, reach out to them and offer your expertise. If your business is open to the idea, propose the idea of starting an internship program with a local college.
Develop partnerships with local businesses. Join local networking groups, nonprofit boards, or arts associations whose activities interest and inspire you.
When it comes to pain and stress, selling your home ranks right up there with divorce and changing jobs. It doesn’t matter if you are selling your starter home or if you’ve been through this before, expect a lot of pain and frustration as you trudge through the process. And if you have a mortgage or a reverse mortgage on it, it will definitely make the process longer.
But take a deep breath and consider these six ways to help you reduce the pain when it’s time to sell your home.
1. Never hire a relative or friend to list your home.
Similar to starting and growing a business with a good friend or your brother-in-law, avoid this at all costs. There is just too much at stake and you shouldn’t have to be “PC” during the long selling process. The journey from listing to closing is tough enough without adding more tension into the equation.
Since you are paying this person to sell your home, you have every right to certain expectations and requirements. You are entering into a business arrangement that by its nature needs to be impersonal.
2. Don’t take anything personally.
Whatever you do, don’t get emotionally involved. It’s easy to say, but remaining objective will save you days and nights of turmoil with issues like:
You think your home should be listed at X, but your realtor tells you that it’s not a competitive price and it should be Y which is $20,000 less. Get over it.
Your first offer is extremely low. Don’t get insulted and emotional. Use it as an opportunity to negotiate conveying to the buyer that you don’t consider it a serious offer.
Don’t let negative comments about your choice of floor coverings or paint colors bother you.
It is, after all, a business transaction, so treat it as such.
3. Ignore election year pessimism.
This is an election year, and history shows election years bring instability. According to Forbes a survey predicts that election year pessimism will hurt the housing market and may make it harder to sell your home.
Combine that with the results of the Brexit vote and you have a situation that breeds unpredictability and uncertainly. Buying, selling and lending just got a lot risker, according to another article from Forbes, “Brexit Hits Home.”
The good news is loans may get cheaper, but for sellers it may mean that homes stay on the market longer and take longer to close.
Homes are still in demand so maintain a positive attitude during these uncertain times. No one can see into the future and ultimately it is about how consumers deal with the uncertainly.
4. Plan along vacation.
If this sounds counter-intuitive, you might want to think again. In fact, take that vacation as soon as you list your home. Your family will be thrilled if you go on vacation, as will your realtor.
If you are not living there, a realtor can schedule open houses and showings whenever they want. You don’t have to drop everything to get out of the house for an unexpected showing. You know, the ones that occur early in the morning when the beds aren’t made yet or during the dinner hour. Biggest bonus: the house stays clean.
Most real estate agents believe they could sell your home easier if you just got out of the way, so do it.
5. Investigate alternate selling options.
Who says you still have to sell your home the same way your parents did? New real estate companies allow you to skip the stress of a traditional real estate transaction altogether and retire the real estate agent. As example, take a look at a new home buying service like OfferPad. Instead of waiting for a buyer to come to you, they buy your home directly, so you can be sold whenever you are ready.
There are countless home buying websites like that today. They position their service as “real estate reinvented,” cutting out all the traditional fluff so you can move on your own schedule. This type of option may not work for all sellers, but this may be a great solution for anyone who values their time and stress levels.
6. Accept the inevitable.
Any disruption in our routine causes stress, and moving certainly qualifies as a disruption, says HealthStatus. In fact, it is one of life’s top five stressful situations. The longer your house is on the market, the more disruption, accumulated pain and fatigue you will endure. On average it takes 76 days to sell a home.
So accept the facts. The next few months will consist of daily disruptions.
After you’ve spruced up the front yard to improve curb appeal, fixed leaks and repainted a few rooms, here come all the strangers walking through your home at all hours of the day and night. Open houses and last minute showings are all part of the process so just accept the inevitable status quo.