Research Updates • Appreciated Assets
Monthly AIRE Perspectives – June 2021
Dear Friends and Valued Clients,
Last month, we discussed “FOMO” – the fear of missing out. As a continuation of that theme, we would like to remind you that the majority of the “home run” investments you might hear about in the news also tend to be more speculative in nature. We have always held the position that high-net-worth investors who are on track to meet their financial goals should invest more conservatively and manage losses rather than take too much risk to strive for greater returns. To this end, we would like to share a notable quote from Warren Buffett: “Never risk what you have and need for what you don’t have and don’t need.” In other words, for the majority of our clients, a slight increase in upside returns will not change their lifestyle, but a significant drop due to a high percentage of speculative assets would likely create unnecessary angst. This is at the core of our investment philosophy, and one of the many reasons why we prefer to remain diversified.
Our research is finally complete!
After months of extensive research, we have finally completed our selection of alternative investments, which we have narrowed down to four major assets classes: private real estate, real estate debt, private equity and private credit. The suitability of each of these areas is different for different clients, but we will be in touch with you throughout this month to discuss our research and next steps.
Potential solutions for appreciated investment real estate and other asset classes
For those who may have appreciated properties or other assets, we thought it might be helpful to make you aware of some potential solutions. PLEASE NOTE: we are not recommending any investments here, but wanted you to be aware of the availability of certain solutions that may be ideal for the right candidates.
Each year, we regularly have at least a few clients discuss the difficulties in dealing with tenants and other issues with their real estate holdings. Real estate investors often take advantage of IRS code Section 1031, which allows them to swap one investment property for another and defer capital gains taxes. For clients who no longer wish to own actual real estate, there are 1031 exchange funds available that will allow such swaps to occur into a fully-managed portfolio of real estate, thereby removing some of the issues real estate investors encounter with their hard real estate holdings.
In addition to 1031 exchange funds, we also want to make sure clients are aware of Opportunity Zone funds, which can be a potential solution for almost any type of appreciated asset. With these funds, investors who take gains on assets can invest those gains into managed Opportunity Zone funds and receive a number of tax benefits. First the gains taken are not taxed until the end of 2026 or when the purchased asset (the Opportunity Zone investment) is sold. Second, for gains placed in such funds for at least 5 years, the cost basis of the original investment is increased by 10%, and if held for at least 7 years, the basis is increased by 15%. In other words, the investor not only defers the capital gains taken on the prior investment, but also gets a reduction in the tax if held for 5 or7 years. Third, if the Opportunity Zone fund is held for at least 10 years, the gains realized on the Opportunity Zone fund itself are not taxed.
If you own appreciated investment real estate or other assets, these are possibilities you should at least be aware of. We look forward to being in touch with each of you this month to discuss all of the above as it might pertain to you.
AIRE Advisors Welcomes Philip Fessler!
AIRE Advisors is pleased to welcome industry veteran Philip Fessler to our team as Partner and Wealth Advisor!
Phil has more than 27 years of experience as a Financial Advisor to high net worth and ultra-high net worth business owners and professionals. He began his career in 1995 as a Fixed Income Specialist at Kennedy, Cabot & Company, where he advised and educated individual and institutional clients on their fixed income needs. Through mergers of the company into TD Ameritrade, Phil held multiple roles, culminating with his final role as Senior Financial Advisor, which he held for 9 years.
Since 2012, Phil has served as a Senior Financial Advisor at Wells Fargo Advisors, working closely with the Wells Fargo Private Bank in advising clients on trust and wealth management, retirement planning and more.
Phil has a passion for mentoring young minds to becoming financially independent. Outside of the office, he lives an active life in Redondo Beach and enjoys spending time with his family.
Once again, we would like to thank you for your trust and loyalty, and look forward to speaking with you in the upcoming month.
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