How do 1031 Exchanges Impact Real Estate Investors' Cash Flow?

A 1031 exchange, also known as a like-kind exchange, is a tax strategy that allows real estate investors to defer paying capital gains tax on the sale of a property by reinvesting the proceeds into a similar property. This strategy can have a significant impact on an investor's cash flow, as it allows them to retain more of the proceeds from the sale of the property and use it to purchase a new one.

A brief overview of how it impacts real estate investors' cash flow: When a property is sold, the investor is required to pay capital gains tax on the profit made from the sale. This can be a significant amount, especially for properties that have appreciated in value over time.

However, by using a 1031 exchange, the investor can defer paying this tax by reinvesting the proceeds from the sale into a similar property. This helps to preserve the investor's cash flow and allows them to use the proceeds to purchase a new property, which could generate more income or appreciate in value over time. Additionally, it can also help investors to diversify their property portfolios and avoid the concentration of assets in one specific area.

It's important to note that 1031 exchanges are complex transactions that are subject to strict rules and deadlines, and investors should consult with a tax professional before attempting one. But if done correctly, they can be an effective way to manage cash flow and grow wealth through real estate investments.

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How a 1031 Exchange Works:

A 1031 exchange is a process that allows real estate investors to defer paying capital gains tax on the sale of a property by reinvesting the proceeds into a similar property. However, there are several steps and guidelines that must be followed in order for the exchange to qualify for the tax deferment.

The first step in a 1031 exchange is the identification of the replacement property. Investors have 45 days from the sale of their original property to identify potential replacement properties. They can identify up to three potential properties, or any number of properties if their fair market value does not exceed 200% of the fair market value of the sold property.

Once the replacement property has been identified, the timing requirements for the exchange must be met. The investor must close on the replacement property within 180 days of the sale of the original property, or by the due date of their tax return for the year in which the original property was sold, whichever comes first.

The role of a qualified intermediary is critical in a 1031 exchange. The intermediary acts as a facilitator of the exchange and holds the proceeds from the sale of the original property until they are used to purchase the replacement property. The intermediary also helps the investor to ensure that all of the rules and guidelines for the exchange are met.

It's important to note that 1031 exchanges are complex transactions and investors must be aware of the rules and guidelines set by the IRS. Any mistake can disqualify the exchange, and investors should seek assistance from a professional to ensure that the exchange is done correctly.

Advantages of using a 1031 Exchange:

One of the main advantages of using a 1031 exchange is the deferment of capital gains tax. When an investor sells a property, they are required to pay capital gains tax on the profit made from the sale. However, by using a 1031 exchange, the investor can defer paying this tax by reinvesting the proceeds into a similar property. This can help to preserve the investor's cash flow and allow them to use the proceeds to purchase a new property.

Another advantage of using a 1031 exchange is the ability to reinvest proceeds into a larger or more profitable property. By deferring the capital gains tax, the investor can use the proceeds to purchase a more expensive property or one that has the potential to generate more income. This can be particularly beneficial for investors who are looking to grow their property portfolios and increase their wealth over time.

A third advantage of using a 1031 exchange is the potential for long-term wealth building. By deferring the capital gains tax and reinvesting the proceeds into a new property, the investor can potentially generate more income or capital appreciation over time. This can help them to build wealth through real estate investments over the long-term.

It's important to note that 1031 exchanges are complex transactions and investors should consult with a tax professional before attempting one. But if done correctly, they can be an effective way to manage cash flow, grow wealth through real estate investments, and diversify property portfolios.

Considerations for Real Estate Investors:

When considering a 1031 exchange, real estate investors must carefully consider their options and weigh the potential benefits against the potential drawbacks. One important consideration is choosing the right property for exchange. The replacement property must be of "like-kind" to the original property, meaning it must be used for the same purpose and in the same manner. It's important for the investor to identify a property that has the potential to generate more income or appreciate in value over time.

Another consideration is the strict deadlines and guidelines set by the IRS for 1031 exchanges. The investor must identify the replacement property within 45 days of the sale of the original property, and close on the replacement property within 180 days of the sale of the original property. If these deadlines are not met, the exchange will not qualify for the tax deferment.

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Another potential drawback of 1031 exchanges is that they can be costly. Investors may have to pay fees to a qualified intermediary and may also need to pay for legal and other professional services. Additionally, the replacement property may be more expensive than the original property, which can reduce the investor's cash flow.

In summary, 1031 exchanges can be an effective way to manage cash flow and grow wealth through real estate investments, but they are complex transactions that are subject to strict rules and deadlines. Real estate investors should carefully consider their options and consult with a tax professional before attempting a 1031 exchange. It's important to weigh the potential benefits against the potential drawbacks and to make sure that the replacement property is a good fit for the investor's goals and needs.

Conclusion:

A 1031 exchange, also known as a like-kind exchange, is a tax strategy that allows real estate investors to defer paying capital gains tax on the sale of a property by reinvesting the proceeds into a similar property. This strategy can have a significant impact on an investor's cash flow, as it allows them to retain more of the proceeds from the sale of the property and use it to purchase a new one.

The process of a 1031 exchange includes the identification of the replacement property, the adherence to timing requirements and the involvement of a qualified intermediary. The advantages of using a 1031 exchange include the deferment of capital gains tax, the ability to reinvest proceeds into larger or more profitable property and the potential for long-term wealth building.

However, 1031 exchanges also come with considerations such as choosing the right property for exchange, meeting strict deadlines and guidelines, and potential drawbacks such as higher costs and reduced cash flow.

In summary, a 1031 exchange can be an effective way to manage cash flow and grow wealth through real estate investments, but it's important to consult with a tax professional before attempting one, to weigh the potential benefits against the potential drawbacks, and to make sure that the replacement property is a good fit for the investor's goals and needs.

Additionally, it's important to remember that 1031 exchanges are complex transactions and investors must be aware of the rules and guidelines set by the IRS to avoid any mistake that can disqualify the exchange.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

The Estate Tax Exemption has Been Raised for 2023

The IRS has recently announced that the 2023 Estate Tax Exemption will be $12.92 million, which represents a significant increase from the 2022 amount of $11.7 million. This exemption represents the amount of a decedent’s estate (including previously taxable gifts) that is exempt from estate tax. The increased exemption is $860,000 more than the 2022 amount and is the result of the rising high interest rates reflected in the rapid growth of the consumer price index.

The estate tax is a federal tax that is imposed on the transfer of assets of a deceased person to his or her beneficiaries. The estate tax is generally imposed on the fair market value of the assets that are transferred, minus any debts or liabilities of the decedent. However, with the increased exemption, more people will be able to pass on their assets to their loved ones without having to pay estate taxes on them.

The increased exemption is a result of the American Taxpayer Relief Act of 2012, which established a formula for adjusting the estate tax exemption for inflation. This means that the exemption amount is adjusted annually to reflect changes in the consumer price index. The 2023 exemption amount is the highest it has ever been, and it is likely to continue to increase in the coming years.

It's important to note that this increase in the estate tax exemption does not mean that estate taxes are eliminated entirely. Estates that exceed the exemption amount will still be subject to estate tax. It's also important to consult with a tax professional or attorney to understand how this change may affect your specific situation.

The 2023 estate tax exemption of $12.92 million presents an opportunity for married couples to protect up to $25.84 million from estate taxes through coordinated estate planning. This is because the estate tax exemption is unified with the federal gift tax exemption, meaning that by utilizing the exemption through lifetime gifting, the amount of exemption available at death is reduced. It's worth noting that the highest estate or gift tax rate remains at 40% for the next year.

Gifting Opportunities to Defer Taxes

The increased estate tax exemption for 2023 presents additional opportunities for gifting. The annual gift tax exclusion amount for 2023 is $17,000 per donee, an increase from the 2022 amount of $16,000. This means that taxpayers can gift up to $17,000 to each individual recipient without having to pay gift taxes or use any of their lifetime gift tax exemption. This tax exclusion applies to present interest gifts, which are gifts that the donee can enjoy immediately, such as cash or similar property, or gifts made to certain trusts.

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For gifts made to non-US citizen spouses, taxpayers can gift up to $175,000 in 2023 before utilizing their Estate Tax Exemption. It's important to note that while gifts to US citizen spouses are unlimited, gifts to non-citizen spouses are not. The non-citizen spouse annual exclusion is a separate limit and it's not part of the general $17,000 per donee exclusion.

In addition to the annual gift tax exclusion, the increased estate tax exemption also provides an opportunity for taxpayers who have previously used all of their available exemption through lifetime gifting to give an additional $860,000 next year without incurring gift taxes. This can be a useful strategy for reducing the size of one's estate and potentially avoiding or minimizing estate taxes.

For married couples, the increased exemption means that they can give a combined $1.72 million without paying gift taxes. This is because the estate tax exemption is unified with the federal gift tax exemption, meaning that the total exemption for both individuals can be used for either estate or gift taxes.

The Future Exemption Amount

The estate tax exemption has been adjusted for inflation and updated annually since 2012, with a base set at $5 million. This base was doubled in 2017 and is effective for tax years 2018 through 2025. After 2025, the base will revert back to the original $5 million.

Given this, it is important to consider utilizing the larger exemption amount through estate planning before 2026. This could potentially help minimize or avoid estate taxes on the transfer of assets to beneficiaries.

Gift Tax Exclusion

The IRS has recently announced that the annual gift tax exclusion amount for 2023 will be $17,000 per donee, an increase from the 2022 amount of $16,000. This means that taxpayers can gift up to $17,000 to each individual recipient without having to pay gift taxes or use any of their lifetime gift tax exemption.

This tax exclusion applies to present interest gifts, which are gifts that the donee can enjoy immediately, such as cash or similar property, or gifts made to certain trusts. This is an opportunity for taxpayers to reduce the size of their estate and potentially avoid or minimize estate taxes.

For gifts to non-US citizen spouses, taxpayers can gift up to $175,000 in 2023 before utilizing their Estate Tax Exemption. It's important to note that while gifts to US citizen spouses are unlimited, gifts to non-citizen spouses are not. The non-citizen spouse annual exclusion is a separate limit and it's not part of the general $17,000 per donee exclusion.

It's important to consult with a tax professional or attorney to understand how these changes may affect your specific situation and to explore all the opportunities to reduce the size of your estate and minimize the taxes that may be due.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Perspectives on the Multifamily Housing Market After the Pandemic

Housing or multifamily development investments can be used to diversify a portfolio, lower volatility, generate consistent income, and give tax benefits that are unmatched by many other assets. Multifamily properties, once one of the most well-liked asset classes, are now a mainstay for both individual and institutional investors. Therefore, it would seem that the benefits of multifamily investing are obvious.

The complexity of multifamily rental communities must be examined more closely in light of the current situation, which has been brought on by the global COVID-19 pandemic and the ensuing economic depression, in order to determine whether this asset class is still as dependable and successful as it once was.

As a dependable partner and thought leader in the alternative investing sector, Perch Wealth wants to help you better understand the state of the market because we think that investors have the right to make well-informed financial decisions. In this article, we will discuss the potential advantages and disadvantages of multifamily investments in the context of the present economic environment.

The multifamily housing industry was significantly damaged by the COVID-19 epidemic, much like pretty much everything else. As we emerged from the early 2000s, which saw burgeoning multifamily housing building and construction as well as increased investor interest, the coronavirus's rapid spread abruptly put an end to much of that excitement and initial momentum.

The nation's builders, developers, investors, and allies paused to consider its state. We all required some alone time to reflect. What is the next step, and where should I go? What should our strategy be for when we emerge from this?

The 2020 Recession's Impact

The core of the multifamily industry — its basic measure of worth — is its ability to provide access to adequate, safe, healthy, secure shelter for Americans. This capacity was at danger due to the pandemic and the ensuing economic impact. The multifamily rental sector was rattled by the persistent instability of millions of households' ability to pay rent. However, the nature of demand continues as it always has.

Because of this, multifamily fared better than most of its competitors during the pandemic-driven recession of 2020; in fact, only industrial fared better. The market's decline was even considerably smaller than during prior recessions.

Young adults who had relocated to their parents' homes to live under quarantine are now going back to live independently. In spite of the turbulent economy, which is still restoring its equilibrium, families are now contemplating more cheap housing options, with many opting for multifamily rental communities where they may raise their children in a safe environment.

However, the increase in multifamily demand is expected to continue as the economy strengthens. According to CBRE, "a full market recovery will occur in early 2022, with vacancy levels returning to pre-COVID levels and net effective rents increasing by 6% in 2019." Jobs may once more give people the financial freedom they require to leave behind their parents' or friends' homes and move out on their own. But given how fresh the pandemic's uncertainty is in people's minds, many would-be homeowners may continue to act cautiously and opt to continue renting indefinitely. Despite the fact that 2021 may have started out slowly, deals are already entering the pipeline, the competition is tight, and agency debt is finally starting to decrease.

The advent of a new era for multifamily housing investors and developers is therefore indicated. The coronavirus pandemic did not cause any new trends in the multifamily housing market, according to the Urban Land Institute's new report, Emerging Patterns in Real Estate 2021, but rather it significantly accelerated the trends that were already in motion. The pandemic did, in fact, spur new shifts towards suburban locations, preferences for floor plans that support work-from-home options, and integrated outdoor social and recreational areas. While this acceleration is unquestionably true, there is also overwhelming evidence that the pandemic did, in fact, inspire these changes.

The Post-Epidemic Multifamily Housing Market: Trends

People are more aware of the concept of safety and what a truly safe living environment looks like in a post-COVID society. Owners of multifamily housing communities should also be aware of ways to improve their capacity for flexible and remote management.

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Trends that are both new and well-established include:


A scaled down "community concept," meaning fewer houses, buildings, or a separate cluster within a bigger neighborhood
Design that is suitable for working from home, as the changing nature of the workday and the workplace may be the coronavirus's most lasting legacy.
Flexibility inside housing units is necessary since areas for daily living must also support and accommodate activities such as working, eating, cooking, and relaxing.
Outdoor areas with amenities
Contactless circumstances
support for innovative retail shopping opportunities, such as safe package storage facilities
Increased movable windows and separate HVAC units that provide access to fresh air
Wider corridors, one-way traffic, alternatives for separation but not complete isolation, signs of effective cleaning and maintenance procedures, more generous shared path routes, and other common area experiences that encourage social distance
Smart home appliances that assist homeowners in controlling things like air quality, security, and temperatures
In order to handle the rental application and signing procedure more successfully and efficiently, leasing agents and management staff should put into practice a few specific tactics.

Recommended techniques comprise:

Virtual tours, which many agents were using before the pandemic but are now considered to be commonplace.
Curbside documentation, which allows new residents to complete an application and sign relevant documents in their vehicle.
Self-guided tours allow prospective clients to explore the facility on their own.

Investors in multifamily housing complexes must continue to stay aware of how the customer's profile is changing as technology fosters greater openness about who the consumer is and what he or she wants.

A Changing Market Develops

Multifamily investment volume is anticipated to rise in 2021 as investors get ready to meet the demands and needs of the current consumer base and as market circumstances continue to get better. The amount of multifamily investments in the US are expected to total roughly $148 billion in 2020, according to CBRE Research. This is a 33% increase above the $111 billion prediction from 2020.

Institutional purchasers and value-add investors may become much more active buyers next year now that future revenue streams are more well understood. Effective rent growth is still rising to record levels. Activity may also rise as a result of offshore buyers, particularly as travel restrictions are relaxed.

Additionally, it is anticipated that low interest rates would persist during the upcoming year. Favorable mortgage rates are a further inducement for enhanced investment possibilities. And the two primary multifamily lenders — Freddie Mac and Fannie Mae — have secured considerable capital availability to support additional purchases.

In the second quarter of 2021, multifamily assets priced at $1 million and up saw a rise in transactions across the country, especially when compared to the preceding three months. Deal flow from April through June also above the five-year quarterly norm, demonstrating a resurgence of faith in the multifamily property class.

Additionally, lenders are following the general recovery of the economy by making financing for high-quality houses available. Actually, the majority of lenders believe that volume will increase following the slowdown in 2020. For assets that proved resilient during the pandemic and/or are currently in a strong recovery position, there are more chances available. Lending rates from banks and credit unions are competitive.

Additionally, the market is doing well for Class A and Class B houses. Most multifamily property managers report collecting between 95% and 100% of rents each month. Rents have also been allowed to be raised from 6% to 12% on average, depending on the asset. a tenet of being an asset is that 90% of the time,s ofss of classes of rentals of classes of of of of:

At the meantime, increased population mobility is boosting the value of real estate in commercial and transportation hubs. Due to easing concerns about the new coronavirus, there is an upsurge in demand for downtown apartments as the urban core starts to recover. The balance between urban and suburban demand is re-emerging as businesses welcome employees back to the workplace. The forecast is favorable for the urban sectors as consumers hunt for entertainment and shopping options. However, suburbia has a certain allure, as apartments are frequently more affordable and have more space, ideal if a prospective tenant is seeking for a space that is the right size for both living and working.

The multifamily housing market has the potential to climb to even higher heights as the economy recovers, as market liquidity improves, and as investors grow more confident in the status of the country.

With committed investors, our team is delighted to get down and go over our progressive investing model. Make an appointment to speak with one of the knowledgeable members of the Perch Wealth team right away, and we'll collaborate to create a long-term investment strategy for you that includes possible cash flow, equity growth, and tax advantages.

General Disclosure

neither a buy-side nor a sell-side solicitation of securities. The material presented here is purely for informational purposes and shouldn't be used to guide financial decisions. Every investment has the chance of losing some or all of the money. Future outcomes cannot be predicted based on past performance. Prior to investing, consult a financial or tax expert.

Financial products made available by Emerson Equity LLC Member: SIPC/FINRA. Only accessible in states where Emerson Equity LLC has a recognized business presence. There are no other organizations mentioned in this correspondence with whom Emerson Equity LLC is associated.

1031 Risk Disclosure:

* There is no assurance that any strategy will be effective or achieve investment goals; * Property value loss is a possibility for all real estate investments over the course of ownership; * Tax status may change depending on the income stream and depreciation schedule for any investment property. All funded real estate investments have the risk of going into foreclosure; adverse tax rulings may prevent capital gains from being deferred and result in immediate tax liability;
1031 exchanges are illiquid assets since they are frequently issued through private placement offerings. There is no secondary market for these investments. * Reduction or Elimination of Monthly Cash Flow Distributions - Similar to any real estate investment, the possibility of suspension of cash flow distributions exists in the event that a property unexpectedly loses tenants or suffers significant damage;

Manufactured housing Investments Are Becoming More Popular

Due to a lack of accessible housing options nationwide, purchasers are looking for practical, cost-effective alternatives to stick-built homes. Manufactured homes are just one option that is becoming more and more appealing. Since the days of the mobile home parks, manufactured housing has advanced significantly. Higher-end prefabricated houses that are almost indistinguishable from their foundation-built counterparts are replacing the cookie-cutter, one-story "trailers" that formerly had a bad reputation.

In this essay, we examine the development of the manufactured home market, the factors driving current demand, and the reasons that both individual owner-occupants and institutional investors are interested in this business.

What is Manufactured Housing?

A portion of the residential housing market is made up of manufactured homes. A manufactured house is a structure that has been mostly or totally built in a climate-controlled facility off-site. Units can be put together either on-site or off, however the latter requires flatbed delivery of the house to its ultimate location. Instead of being anchored into more substantial foundations, the majority of prefabricated houses are constructed on top of concrete slabs or mobile platforms. As a result, prefabricated housing needs to be tethered to the ground or otherwise secured.

Building costs are often reduced by efficiencies brought about by the off-site, assembly-line-style construction procedure. When compared to conventional residential structures, prefabricated homes are more economical since these cost savings may be transferred to the end users.

A particular kind of prefabricated housing is modular housing. In essence, modular construction uses a "kit of parts" strategy, wherein different building categories (such as kitchens, bathrooms, and bedrooms) are built using lean processes, and each of these modules is then combined with the others, depending on the needs of the home builder or buyer, and shipped to the location to be put together on-site.

Manufactured housing, as opposed to typical mobile houses, may be found in a variety of sizes and forms. The size of a home might range from 500 square feet to 3,000 square feet or more. Depending on the requirements, they may be created in a matter of days or weeks and can be constructed with a variety of materials, amenities, and finishes. Some tasks might take months to finish.

A Look Into Manufactured Housing History

Over the past 50 years, manufactured housing has advanced significantly, especially as technology has advanced and enabled more efficient industrial building methods. Traditionally, stick-built homes were regarded to be of higher quality than manufactured homes. The quality of prefabricated homes today is frequently comparable to other entry-level residences.

Furthermore, the majority of prefabricated homes in land-lease communities throughout the 1970s and 1980s. An owner/operator would "lease" the land to a homeowner who would then use a personal property loan to buy the house that was built on that particular piece of property. In the modern era, more than half of prefabricated houses are sold to purchasers who then set up the homes on privately held properties, including more conventional residential developments.

This movement is due to a few factors: First, compared to those constructed in earlier decades, modern prefabricated homes are frequently bigger and more appealing. As a result, these houses mix in perfectly with both established and more recent residential neighborhoods. Many people who own a piece of property choose to have their dream home delivered rather than waiting to build one, which may save both time and money. Second, prefabricated homes are a product category that has gained popularity among consumers of all stripes as the available choices have increased. Mobile houses or manufactured homes are no longer regarded as affordable accommodation for tenants or buyers with modest incomes.

Drivers of Manufactured Housing Demand

A resurgence in manufactured houses is taking place. This specialized product category is beginning to draw interest from consumers, both individual and institutional, for a number of reasons.

Better Product Quality: Modern prefabricated homes are constructed in climate-controlled facilities under stringent quality control and oversight at every stage of the process. Due to this, product quality has increased, especially in terms of durability and energy efficiency. Granite countertops, central air conditioning, and high-end appliances are examples of modern materials, conveniences, and finishes that may be implemented into prefabricated houses of various sizes. The higher product quality has frequently rendered prefabricated homes identical to their stick-built counterparts.
Reduction of Regulatory Barriers: For many years, the development of prefabricated housing communities was hampered by widespread and continuous resistance to manufactured houses. The resistance to manufactured housing has decreased as product quality has increased, making it more possible for consumers to invest in or buy manufactured housing for their own use and enjoyment.
Lack of Entry-Level Home: Manufactured housing offers a feasible entry-level housing choice amid the nation's affordable housing crisis, especially in coastal cities like Florida where workforce housing is getting harder to find. Comparing manufactured homes to conventional stick-built homes, their construction costs are around half as much per square foot. Because of this, prefabricated homes are a desirable alternative for both renters and first-time purchasers.

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Broad Appeal: Manufactured housing appeals to a variety of demographics, not only first-time homeowners. The market for prefabricated houses is being driven by Baby Boomers, particularly those wishing to downsize or retire in warmer regions.
Low Vacancy Rates: The vacancy rate of current manufactured home communities has drastically decreased due to the scarcity of cheap housing choices and the rising popularity of manufactured homes. The vacancy rate in prefabricated housing communities in coastal cities like Miami, San Jose, Denver, and Salt Lake City reportedly stayed around or below 1% last year, according to a recent Marcus & Millichap research.
Rents are going up: Land-lease prefabricated house owners have been able to raise rents due to a lack of available inventory. In a recent study, 93 percent of operators predicted that rents will remain the same or increase in 2020. With a 4.6 percent increase, the Northeast outpaced the rest of the country in terms of rent growth. The Gulf Coast and Mountain Region both had 4.5 percent increases from the previous year. In certain areas, lot rent in coastal towns is starting to nudge closer to $1,000 per month.
Housing manufactured as an investment

It should come as no surprise that investors are beginning to think about include prefabricated housing communities in their portfolios given the demand factors mentioned above. This is especially true now that these developments are being managed better. Most prefabricated housing communities were until recently locally owned and run, sometimes by untrained mom and pop investors. These communities are now being purchased by more seasoned investors, including DST sponsor businesses, who are also bringing in professional management. By doing this, they put themselves in a stronger position to work on raising rents and, consequently, property values, which, if attained, may then be transferred to investors.

Larger investors are joining the game as the value of prefabricated home communities becomes increasingly obvious. Four new REITs were established in 1994, the first ones created particularly to invest in this product category (Manufactured Home Communities, ROC Communities, SUN Communities, and Chateau Properties). These REITs are still performing better than many of their more established residential REIT competitors. Today, a number of other REITs have added prefabricated housing to their portfolios.

Additionally, manufactured homes are increasingly regarded as reliable investments. The majority of land-lease communities feature constant (and rising) rents and little turnover. According to some estimates, over 90% of land-leased manufactured home communities are occupied.

The Future of Manufactured Housing

The future is bright for prefabricated homes, maybe brighter than ever. The dearth of affordable housing choices in the country can actually increase the attraction of prefabricated houses.

From an investing standpoint, individuals need to be ready for yields to compress. The majority of the top-notch manufactured home communities have already been acquired as more institutional capital has entered the market. Cap rates have already started to decline. In response, a lot of investors are increasingly purchasing smaller, less desirable areas with the intention of expanding or adding value.

Conclusion

The appearance of manufactured homes has drastically changed over the past several decades. Modern prefabricated homes are luxurious yet reasonably priced. Individual buyers, tenants, and investors of various sizes are drawn to them. Nevertheless, despite the industry's increasing popularity, there is still a lot of room for growth, especially at a time when other residential product categories are also seeing growth. People will always need a place to live, and if more economical choices aren't available, prefabricated houses can be a popular choice.

Perch Wealth collaborates with sizable, seasoned, and qualified DST sponsor businesses that provide accredited investors wishing to invest their 1031 exchange funds with manufactured housing investment possibilities. To learn more about this asset class and investing prospects, get in touch with Perch Wealth right away.

General Information

neither a buy-side nor a sell-side solicitation of securities. The material presented here is purely for informational purposes and shouldn't be used to guide financial decisions. Every investment has the chance of losing part or all of the money. Future outcomes cannot be predicted based on past performance. Prior to investing, consult a financial or tax expert.

Financial products made available by Emerson Equity LLC Member: SIPC/FINRA. Only accessible in states where Emerson Equity LLC has a recognized business presence. There are no other organizations mentioned in this correspondence with whom Emerson Equity LLC is associated.

1031 Risk Disclosure: * There is no assurance that any strategy will be effective or achieve investment goals; * Property value loss is a possibility for all real estate investments over the course of ownership; * Tax status may change depending on the income stream and depreciation schedule for any investment property. All funded real estate investments involve the risk of going into foreclosure; adverse tax rulings may prevent capital gains from being deferred and result in immediate tax liability;
1031 exchanges are illiquid assets since they are frequently issued through private placement offers. There is no secondary market for these investments. * Reduction or Elimination of Monthly Cash Flow Distributions - Similar to any real estate investment, the possibility of suspension of cash flow distributions exists in the event that a property unexpectedly loses tenants or suffers significant damage; * The impact of fees and expenditures - The costs of the transaction might have an influence on investors' returns and even surpass the tax advantages.

How Investing In Real Estate May Protect You From Inflation

All of the major business news channels have recently used the word "inflation" in their headlines to describe the gradual rise in the price of goods and services over time. Everyone was mainly concerned with talking about how abruptly and finally the United States' record low inflation rate was ending. Food prices were the highest they had ever been, used car prices were setting records, lumber costs were soaring, and it appeared that gasoline prices would continue to rise.

It is no longer a secret that the price of necessities like food and shelter is rising, even though the precise cause of price hikes is still up for debate. While it is still true that we have experienced a fortunate and extended period of low inflation, it seems like all good things do, in fact, come to an end, and currently is essentially the end of inflation's record lows. Inflation is currently having an impact on the life and work of the average American.

For financial backers, high inflation prices have the consequence that it may affect the value of a potential source of revenue in the future. As a result, investors must produce returns that are greater than the rate of price inflation. This means that financial backers should be prepared to adjust their venture strategies going forward and carefully plan to support against inflation now more than ever.

In this essay, we will define inflation, discuss how it affects financial backers, and promote one main idea: that sound money management may be the best defense against both inflation and the lack of buying power that results from it.

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Inflation: What is it?

After some time, inflation is the gradual increase in labor and product costs. The Consumer Price Index, which is based on a registry of frequently purchased products and services, is used to estimate it. The United States' central bank is in charge of establishing monetary policy, and inflation is frequently one of its main concerns.

The Federal Reserve saves the ability to respond when price inflation extends over or below this reach, but generally works to control inflation to a defined aim (about 2-3% annually).

According to the most recent report from the U.S. Department of Labor Statistics, the Consumer Price Index (CPI), a measure of inflation, rose by 5% over the course of the previous year alone. The most notable increase started in 2008, ironically the last time the country experienced a financial disaster.

How is inflation going to hurt financial investors?

Since financial backers must generate returns that outpace economic inflation, inflation can be harmful to their investments.

To reach this important conclusion even more forcefully, a model can be used.

If inflation is running at 3% per year and a financial backer puts her money in a currency market account that offers a reasonable rate of income at 2% per year, she will actually lose 1% of her purchasing power annually compared to inflation. Long-term, the financial backer's funds may buy less because labor and product costs have increased more quickly than her speculative returns.

Financial backers can think about looking for inflation fences or resource classes that are ideally located with the potential to perform well in times like these to avoid a situation like this.

Financial planning that emphasizes real estate may be the hedge you need to protect yourself from inflation.

Why is real estate considered to be a reliable inflation hedge?

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There are several causes. Insofar as one is concerned, one could examine how inflation affects obligation. After some time, the rising cost of a home reduces the credit to the amount of any mortgage debt, functioning as a kind of cyclical markdown. As a result, even while the property's value rises, your fixed-rate contract installments stay the same.

Due to the fact that rising home prices typically result in multifamily housing networks, inflation may also benefit investors who make money from investment properties, particularly those who own property in those locations. If a land investor can modify the terms of their lease while keeping their mortgage the same, this creates the opportunity for increased financial flexibility.

Finally, as property valuations tend to continue on a steady vertical arc over time, land may be a good hedge against inflation. The bulk of the homes that fell to their lowest prices when the real estate bubble broke in 2008 did so in less than ten years. Additionally, land speculation can produce predicted recurrent income for financial supporters and can keep pace with or even outpace inflation in terms of value.

We should now focus on a few techniques frequently employed to try to fence land enterprises against inflation because the evidence seems to favor land and because it is a resource class that has generally held its own when faced with rising inflation rates.

How could using real estate as a hedge possibly be possible?

Investing in a multifamily property may be one of the most revolutionary ways to use land to protect against inflation. Residents of certain types of properties, such as commercial buildings (such retail sites), are required to sign long-term business leases. The majority of multifamily housing only renews rents once a year for each occupant. The more frequently you are given adequate opportunities to change the lease, the more units the building has. The same holds true for self-capacity.

Multifamily structures, such as apartment buildings, are a special resource class in that they are frequently continually in demand, especially as accommodation expenses soar. Additionally, there is a limited supply of buildings or new improvement projects due to recent increases in labor and material costs, which might lead to an increase in rental rates and property estimates. Together, these two factors equal a property that might not be vacant for prolonged periods of time and different opportunities to renew or start leases at prices that reflect changes in the market.

Another thing to take into account is that cost repayments, another rent component, are another way that land money management may be able to keep up with inflation. No matter the type of building structure, leases transmit some of a property's ongoing operating costs to its tenants. Landowners or building owners can surely be partially protected against the increase in utility and support costs due to inflation.

At that moment, it is obvious that investing in land, particularly in multifamily housing units, may be a good way for our ongoing business sector to protect itself from inflation. Effective money management is frequently considered a technique to protect reserve monies in a volatile and inflationary economy.

The motivation for financial backers' hasty landing in the midst of financial weakness is extremely clear. No matter what, a place to stay will always be needed, and hence likely in demand. A long-term investment in a speculation property may be a safe way to turn a passing interest into something more substantial in the near future.

However, investors can look at land trusts (REITs), intuitional land assets, and Delaware Statutory Trusts if they are unable to own and manage the venture property themselves or simply don't want to (DSTs). It is entirely up to each individual to decide how to manage their finances with regard to their land; this is and should be a personal financial decision. In any event, it might be worth your time and effort to educate yourself on all of your options before making a decision. You might also consult a learning experience expert like the team at Perch Wealth.

Why is investing in a DST a potentially lucrative land venture option?

Investing in a Delaware Statutory Trust, or DST, may be an extremely enticing land investment option if your major worry is to hunt for wealth protection during an inflationary financial moment. A DST is a typically complex arrangement for people who want to invest some resources in land.

A DST is a mechanism for financial supporters to own land with the potential to obtain recurring, automated income and have no management responsibility. Most investors rarely think about whether they want active or passive management of domain property, and as a result, they frequently find themselves in situations they don't feel qualified for, aren't very interested in, or aren't currently benefitting from as they would like. A DST investment is a fantastic prelude to a potential ongoing source of income and accumulation of unrelated riches for a first-time or relatively new financial supporter.

There are two crucial methods via which one can invest in a DST. The first is by making a quick financial guess. If you're new to land effective money management, for instance, and you merely need to lock down your opportunity, you can aim to invest $50,000 in a DST in order to gain momentum in the land industry. The second method involves a 1031 Exchange.

Many investors are completely unaware that they can use a 1031 Exchange to fund a DST, despite the fact that there are many potential benefits to doing so. By completing a 1031 Exchange, you can potentially increase the current housing market level and separate your assets into multiple DSTs that are geologically shifted and in certain resource classes, helping to moderate and potentially limiting the overall risk to your capital. If you're interested in learning more about 1031 Exchanges, DSTs, or other types of optional land speculation schemes, contact a financial professional at Perch Wealth right away.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Where Do I Consider Investing My Money Today?

Today’s market offers investors a plethora of investment opportunities across numerous industries. While having multiple options can help improve an individual’s investment strategy, they can also cause uncertainty, raising questions about which investment suits the person’s financial objectives. To help provide direction on which investment is right for you, we will outline the basic elements of today’s most desired investments and briefly review the pros and cons of each one.

For this article, we will divide the information into two sections. First, we will look at more traditional investment options, such as investing in stocks or bonds. Next, we will review alternative investments. Although less known among today’s investors, alternative options offer potential perks that many traditional investments lack.

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Traditional Investment Options

Historically, investors have relied upon a 60/40 portfolio composition to help them achieve their long-term financial dreams, such as building a nest egg for retirement, repaying a mortgage early, or paying educational expenses for their children. According to this model, an investor’s portfolio should consist of roughly 60 percent stocks and 40 percent bonds. This model historically tended to deliver investors stable growth and income to help them meet their financial goals.

Stocks, or equities, are securities that represent fractional ownership in a corporation. Investors buy stocks and rely upon the corporation’s growth to increase their wealth over time. Additionally, stocks may offer investors dividends – or payments to shareholders – for passive income. On the other hand, bonds are debt securities offered by a corporation or government entity looking to raise capital. Unlike stocks, bonds do not give investors ownership rights, but rather they represent a loan. The most significant difference between stocks and bonds is how they generate profit: stocks must appreciate in value and be sold later on the stock market, while most bonds pay fixed interest over time.

While stocks offer investors the potential for higher returns than bonds, bonds are generally considered a less risky investment. As a result, many investors turn to investment funds, such as mutual funds, exchange-traded funds, or closed-end funds, to diversify their portfolios while maintaining a 60/40 composition. These investment funds pull together capital from multiple investors, which is then invested into a portfolio of stocks and bonds. Investment funds offer investors the potential to mitigate risk through a more balanced portfolio.

A Change in the Portfolio Model

Due to ongoing volatility in the stock and bond market, rising prices for commodities, and high equity valuations, the traditional 60/40 portfolio model is no longer serving investors to the same degree it once did. As a result, many financial experts are now recommending that investors diversify their portfolios with 40 percent alternative investments to help potentially improve their financial position. 

Alternative Investments

While numerous types of alternative investments exist, we will focus on alternative real estate investments due to the benefits they can possibly offer investors in today’s market. 

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Why real estate?

Real estate has long been one of the most sought-after opportunities for investors. As a limited commodity, real estate has historically afforded investors the potential for long-term security, great returns, passive income, tax advantages, and a hedge against inflation. However, real estate investments also come with certain disadvantages. Getting started in real estate investing typically requires an extensive amount of capital and strong financials for those who are leveraging debt. Furthermore, real estate generally requires active participation – investors are required to manage their assets to ensure optimal performance.

Therefore, alternative investments in real estate have started growing in popularity among the investment community. While they can often offer similar advantages to real estate investing, they deliver a passive opportunity, meaning they have zero management responsibility. Here are a few options for investors seeking alternative real estate investments.

Real Estate Investment Trusts

A real estate investment trust (REIT) is a company that owns and typically operates income-producing real estate or related assets. REITs incorporate all asset types, including multi-family, retail, senior living, self-storage, hospitality, student housing, office, and industrial properties, to name a few. Unlike other real estate investments, REITs generally purchase or develop real estate for a long-term hold.

Investors rely on a REIT professional’s understanding of the real estate market to diversify and stabilize their portfolios. Many REITs are publicly traded, meaning that all investors, including unaccredited investors with limited capital, can invest in them.

While publicly-traded REITs deliver many advantages associated with traditional real estate investing – such as income potential, diversification, and possible inflation protection – they also come with some distinct disadvantages. For example, REITs often experience slow growth. Because REITs must pay out at least 90 percent of their profits in dividends, new acquisitions and developments are limited. To determine the strength of an investment, potential investors should conduct due diligence – with the help of an expert – on the REIT prior to purchasing shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a legally recognized real estate investment trust where investors purchase an ownership interest, or fractional ownership, in a real estate asset or real estate portfolio. DSTs are commonly relied upon by 1031 exchange buyers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

In addition to providing investors passive income potential through a management-free investment, DSTs enable investors to invest in institutional quality assets to which they would not otherwise have access. These assets may be able to deliver higher returns and longer-term stability. Furthermore, the debt structures of DSTs are attractive to many investors. People who invest in DSTs have limited liability equal to their investments; however, they are able to take advantage of the often attractive financing obtained by the sponsor companies. Unfortunately, only accredited investors can invest in DSTs.

Opportunity Zones

Opportunity zones (OZs), defined by the IRS, are “an economic development tool that allows people to invest in distressed areas in the United States. This incentive's purpose is to spur economic growth and job creation in low-income communities while providing tax benefits to investors.” OZs were introduced under the Tax Cuts and Jobs Act of 2017, and investors interested in investing in an OZ must do so through a qualified opportunity fund (QOF).

QOFs can be a superb option for investors due to their tax benefits, which depend on the length of time an investor holds a QOF investment. We have previously explained these benefits, which we refer to as OZ triple-layer tax incentives. Here’s a snapshot of the tax benefits a QOF offers an investor:

While opportunity zones are considered a risky investment, given their purpose, they can potentially deliver investors higher returns when compared to other alternative real estate investment options.

Interval Funds

An additional alternative investment option worth mentioning are interval funds. These funds are not limited to real estate but instead can be used to invest in many securities, including real estate. Similar to previously mentioned funds, interval funds pull shareholder capital together to invest in different securities. However, they offer a lower degree of liquidity. Instead of being able to trade shares daily, investors are typically limited to selling their shares at stated intervals (i.e., quarterly, semi-annually, or annually). The benefit of interval funds is the flexibility they offer the funds – they allow the fund to execute longer-term strategies, creating the potential for a more stable investment. As a result, interval funds tend to deliver higher returns and a more diversified opportunity.

Now, where do I invest my money today?

While the above information offers a snapshot into the pros and cons of various investment options, you should consider additional aspects. Rather than immediately trying to identify which option is best for you, the key takeaway here is to understand that today’s market offers an array of investment options that were previously unknown to many. Investors can diversify beyond stocks and bonds, which can possibly provide them with higher returns while seeking to mitigate risk. To develop an investment portfolio that meets your financial goals, we advise you to speak with a financial professional at Perch Wealth.

financial-planning-investment-opportunities-1031-exchanges-DSTs-California

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

•          There is no guarantee that any strategy will be successful or achieve investment objectives;

•          Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

•          Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

•          Potential for foreclosure – All financed real estate investments have potential for foreclosure;

•          Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

•          Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

•          Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits