Hedging Volatility with Tertiary Markets

Investors looking to diversify their portfolio with non-correlated assets can look to alternative investments, including illiquid real estate. Long-term real estate investments are typically not as affected by short term swings in public markets. When assessing tertiary markets – smaller real estate markets with a population of less than 2 million people – it can be useful to look for markets with core economic driving forces while also having high barriers to new development. These two key factors can be indicators of sustainable demand.

Using a Delaware Statutory Trust in a 1031 Exchange

Since 1921, section 1031 exchanges have been one of the most efficient tax deferral and wealth transfer vehicles available for real property investors. In a 1031 exchange, a property owner exits from an investment property and then replaces it with a “like-kind” asset, the benefit being the deferral of capital gains tax from the relinquished property. Notably, Delaware Statutory Trusts (DST) serve as a vehicle that may qualify for a 1031 exchange.

1031s versus Opportunity Zones

“If you take anything away from today’s discussion, I just can’t stress how important it is to discuss and get this in front of your clients as soon as possible, well before they contemplate their real estate (or capital asset transaction). Individuals who fail to plan adequately and get a good team of advisors around them will quickly lose one of the best opportunities that they have had in years.” Wise words to end on, by Jean-Louis Guinchard.

Understanding Tax-Advantaged Vehicles, 1031 Exchanges, DSTs, and Opportunity Zones

When investors sell an appreciated investment property, they face a choice. They can do nothing and pay the capital gains tax; depending on the state and the individual’s income level the tax liability can be as high as 33%. The other option is to employ a tax-advantaged deferral and reduction vehicle. These vehicles fall into three large buckets: 1031 exchanges, Delaware Statutory Trusts, and new Qualified Opportunity Zone Funds.