Re: Trading Residential Real Estate for Commercial

Bill Exeter — Mon, 17 Dec 2007 04:53:58 GMT

Hi Rusty,

Great post! This is really good information for those that are ready to 1031 exchange out of single family residential property and want to get more involved with commercial real estate investments. There are a number of ways to do this.

Investors interested in learning more should tune in to The Exeter Group Real Estate Talk Radio Show on Monday, December 17, 2007 for a discussion with Rusty Tweed and Michelle Langer with Tweed Financial Services, Inc. regarding selecting, evaluating, and acquring commercial real estate.

Trading Residential Real Estate for Commercial

Rusty Tweed — Thu, 01 Nov 2007 22:40:54 GMT

For further information, contact:
Robert R. Tweed: President
Tweed Financial Services, Inc.
(626) 588-1520

Trading Residential Real Estate for Commercial
By Robert R. Tweed
Tweed Financial Services, Inc.

Many individuals end up real estate investors by deciding to hold onto an existing property for future appreciation when purchasing a new home. A typical scenario is: two recent clients, Don and Diane, were definitely in that situation. Before getting married ten years ago, both owned their own separate homes. They kept the properties for rentals when they purchased a new home together. Although their first homes have appreciated substantially, when Don and Diane came to Tweed Financial, they were tired of managing rentals and concerned that the value of the properties could drop further. Selling outright, however, would mean incurring 15% federal capital gains taxes, 25% depreciation recapture taxes and 9.3% California capital gains taxes. Given the length of time they had owned the properties, the tax impact would be substantial

1031 Exchange Advantages

“Like kind” or 1031 exchanges allow the complete and indefinite deferral of capital gains taxes and recapture of depreciation taxes. This gives real estate investors the opportunity to keep invested assets that would otherwise be lost to taxes when they restructure their real estate portfolio.

By using a “Tenants-in-Common” 1031 Exchange, Don and Diane were able trade up into a fractional interest in a commercial building in Dallas, a retail center in Chicago and multi-family complex in Atlanta. Along with geographical diversification, the larger properties offered increased cash flow potential and professional management.

They could also have used a 1031 exchange to invest in a single property with different use characteristics, or to purchase a new rental in an area where they might envision retiring. 1031 exchanges also offer investors an opportunity to enhance the income potential of their investment property by trading nonproductive property for real estate investments that produce income or using an exchange to push up their basis, restart their depreciation and shelter a significant portion of their rental income from taxes

In addition to solving their immediate headaches, the TIC 1031 exchange also offers Don and Diane estate planning benefits. Because their children may be entitled to receive a “stepped up” basis on real estate properties when they inherit, the family could escape forever taxes on investment real estate capital gains deferred throughout Don and Diane’s lifetime.

A “stepped up” basis sets the value of your properties to market value when they are inherited to avoid double taxation. Your heirs might owe estate taxes on the property if your estate is in excess of the current exemption level, but capital gains taxes may be due only on appreciation that occurs during the period that the heirs held the real estate.

Just keep in mind all investments offer the potential for loss as well as gain. As with any real estate investment there are various risks, including but not limited to: illiquidity, limited transferability, limits on management control of the property, variation in occupancy which may negatively impact cash flow, and loss of principal. Real estate values may fluctuate based on economic and environmental factors. When using 1031 exchanges and investing in commercial real estate make certain you are working with a financial advisor who understands the asset class and exchange requirements, and read all disclosure documents thoroughly.

Robert “Rusty” Tweed is president of Tweed Financial Services, Inc is an independent, comprehensive financial planning and investment management firm. Tweed has educated thousands of investors on real estate investment and estate and trust issues through his popular seminar series since 1997. A Certified Estate Advisor, he is a member of the Tenants-in-Common Association and the National Association of Financial and Estate Planners.

Tweed Financial Services offices are located at 2060 Huntington Drive, Suite 1, San Marino, CA 91108. 626-588-1520. www.tweedfinancial.com.

Securities Offered Through CapWest Securities, Inc. Member FINRA/SIPC/MSRB.
Tweed Financial Services, Inc. and CapWest Securities, Inc. are non-affiliated

1 This situation is presented for illustration purposes only. Do not assume that the same conclusion could be drawn from or applied to any other situation. Consult with your tax advisor for actual tax consequences.
2 1031 Tenant-in-common interests are offered only to accredited investors as defined by the US Securities and Exchange Commission. This information is neither an offer to buy or sell any security; such offers may only be made by prospectus or through the issuer’s private placement memorandum.

TIC Investment Properties

Re: Trading Residential Real Estate for Commercial

Trading Residential Real Estate for Commercial