Growing Your Wealth Through Real Estate

 
As an investment, the case for real estate remains a good one. Not only has the sector outperformed the S&P 500 over the past 40 years (an average annual return of 9.3% for the NCREIF Property Index versus an 8.7% return for the S&P 500), it’s done so with dramatically less volatility (7.8% compared to 16.4%), according to the S & P Dow Indices and NCREIF.
 
Real estate has a low correlation to stocks and bonds. Because it’s a lagging economic indicator — it rises and falls well after the rest of the economy — it moves differently than stocks or bonds. What’s more, real estate markets are unique. The factors that can sink home prices in one market can have no bearing on another, although that’s not always the case.
 
Although the real estate market has plenty of opportunities for making gains, buying and owning real estate is a lot more complicated than investing in stocks, bonds and mutual funds.
 
Perhaps the biggest difference between a rental property and other investments is the amount of time and work required. If you invest in a rental property, there are many responsibilities that come along with being a landlord. You should also consider the amount of time required to deal with the investment. You may want to consider hiring a real estate property management company to handle the day-to-day operations of your real estate portfolio in exchange for a percentage of the rental revenue.
 
Because of the time involved in managing real estate, many investors prefer passive investment. A real estate investment trust (REIT) is created when a corporation (or trust) uses investors’ money to purchase and operate income properties. REITs are bought and sold on the major
exchanges, just like any other stock.
 
REITs are unique because of their tax structure, which was designed to encourage smaller investors to invest in real estate projects they otherwise wouldn’t be able to afford. Corporations that have opted for REIT treatment pay no Federal income tax on their corporate earnings as long as they follow a few rules, including a requirement to distribute 90% or more of profits to shareholders as dividends.
 
One downside of investing in REITs is that, unlike common stocks, the dividends paid out on them are not “qualified dividends,” meaning the owner can’t take advantage of the low tax rates available for most dividends. Instead, dividends from real estate investment trusts are taxed at the investor’s personal rate.
 
Another excellent real estate strategy is the 1031 exchange. This tool allows an investor to sell a property, reinvest the proceeds in a new property, and defer all capital gain taxes. There was a time when 1031 cases needed to be simultaneous transfers of ownership, but under current law, a contract to exchange properties in the future can be used as well.
 
Family Limited Partnerships (commonly called FLPs) are frequently used to move wealth from one generation to another, and can be a useful structure for holding and transferring real estate within a family.
 
FLPs are typically holding companies, acting as an entity that holds the property contributed by the members. FLPs have several benefits. They allow family members with aligned interests to pool resources, thus lowering legal, accounting, and investing costs. They allow one family member, typically the General Partner (GP), to move assets to other family members (often children who are Limited Partners, or LPs), while still retaining control over the assets. Because the LPs have no rights of control, they cannot liquidate their partnership interest. The timing and amounts of distributions is up to the GP(s). That means a distribution cannot be made to one partner (GP or LP) unless all partners receive their pro rata portion of any disbursements.
/ Print
Posted by Lineweaver Financial Group in Growing Your Wealth, Real Estate, REITs

Comments


Be the first to comment
Name*
E-mail*
Website
Comment*
0 Pending Comments
 Keep me updated of follow-up comments!
Most Recent

By Lineweaver Financial Group
September 08, 2017 Category • Mutual Funds, Expense, Costs

With the push to increase the transparency with what investors pay for advice, one area that is not truly transparent are the costs associated with mutual funds. While mutual funds do disclose their expense ratios, many costs are not published, and can erode your real returns. Here are a couple of examples of these costs, and what you can look out for. Disclosed Costs: The disclosed costs of mutual funds are supposed to be revealed to you. But there are many of these costs. For example, there can be shareholder fees, which can consist of front-end loads, back-end loads, purchase fees, redemption fees, exchange fees, and account fees. There is also the expense ratio, which includes operating costs, management fees, 12b-1 distribution fees, and administrative costs. How much do they cost? According to a study published in the Financial Analyst Journal that was authored by finance professors at the University of California Davis, University of Virginia, and Virginia Tech, the average

By Lineweaver Financial Group
August 21, 2017 Category • North Korea, Market, Conflict, Lineweaver Wealth Advisors

August 21, 2017 We know that many of you have been interested in the events unfolding between President Trump and North Korean Leader Kim Jong-un. Keep in mind that: Rhetoric does not necessarily equal action:No doubt there has been much bluster in the media lately between President Trump and North Koreas Leader, Kim Jong-un. We should keep in mind, however, that rhetoric is not the same as action. Rest assured that military policy decisions are not being based on President Trumps tweets or Kim Jong-uns statements. President Trump is surrounded by a strong cabinet of highly accomplished and highly experienced military leaders including Gen. James Mattis, Gen. John Kelly, and Lt. Gen. H.R. McMaster. We should trust these leaders to guide our Nation through times of crisis. Market performance in times of conflict:History provides relevant context with respect to market performance in times of conflict. Since 1900, there have been 7 major geopolitical crises that have included

By Lineweaver Financial Group
August 18, 2017 Category • Financial, Finance, Coordination

In our increasingly complex financial world, its important to discuss the need to have an overall coordinated approach when it comes to financial affairs. Think of 11 players going onto the football field, and hiking the ball without taking the time to get into a huddle and have the quarterback call the play. The chances of these guys getting into the end zone are slim. Without overall coordination of your financial affairs, getting into the financial end zone may be difficult for you as well. Most people dont think of all their advisors as a team, but its important to recognize that most of us already have a financial team; we are getting financial advice from a variety of sources. Your financial team is comprised of your different insurance agents, your CPA or tax preparer, your bank, any investment advisors with whom you are working, and your estate planning attorney. Everyone has a financial team, and they all need a Financial Quarterback. Lets look at some potential pitfalls of

Categories
Newsletter (25)Retirement Planning (13)Financial Planning (10)Retirement (9)Letter From The President (7)Education Programs (6)Market Commentary (6)Lineweaver (6)Tax (5)Economic Commentary (5)Tax Planning (4)Social Security (3)LFG (3)Healthwatch (3)Q3 (3)High Income (2)2017 (2)2016 (2)Brexit Update (2)Bonds (2)Market (2)Interest Rates (2)Diversification (2)Financial Strategies (2)General (2)Social Security Benefits (2)Client Spotlight (1) (1)Winter 2017 (1)Retiring (1)Legacy (1)2016 Market (1)Q1 2017 Newsletter (1)Retire (1)Market Update (1)Self Employed (1)Retire Early (1)Annuity (1)Charity (1)FInance (1)Policy (1)Donor Advised Fund (1)Private Foundation Charitable Lead Trust (1)Growing Your Wealth (1)Real Estate (1)REITs (1)Trump (1)Bonds Ladder (1)Annuities (1)Charitable Remainder Trust (1)Rising Interest Rates (1)Annuity Alternatives (1)Life Insurance (1)Stocks (1)Dividend (1)Market Review (1)Business Owners (1)Election (1)Charitable Contributions (1)Social Security Planning (1)Financial Advisor (1)Women And Money (1)Estate Planning (1)Harvest For Hunger (1)Service Day (1)Financial Advice (1)Costs (1)IRA (1)Roth (1)Statements (1)Retirement Tips (1)Expense (1)Mutual Funds (1)Gifting (1)Insurance (1)Fall 2016 (1)Politics (1)Candidates (1)Financial Health (1)Holiday Planning (1)Holiday Gifts (1)Stockpile (1)Lineweaver Wealth Advisors (1)Conflict (1)Protection (1)Risk Management (1)Financial (1)Finance (1)North Korea (1)Coordination (1)1st Quarter (1) + Show More