With Easter weekend coming up, I am reminded about the wise old investment adage of not putting all of one’s eggs into one basket. Due to high up-front investments required to acquire quality income properties, we often see investors committing too large a portion of their net worth into too few assets. If all goes well, this strategy may be OK – but since no one can predict the future with 100% certainty, smart money is invested using an asset allocation model to spread risk and minimize losses if a single investment fails to perform. With investment minimums as low as $25K, DSTs offer investors an opportunity to develop a portfolio of investments that can be highly diversified across asset classes and geographies thereby minimizing the potential negative consequences that could occur if individual properties experience problems.
We are fortunate to have our headquarters located in an area that has experienced perhaps the highest real estate appreciation in the entire US – Silicon Valley. Investors in our area have seen their real estate investments increase up to 4 times or more in value over the last 20 years. Instead of feeling elated at having all this increased net worth, many California investors are understandably growing nervous about having so much equity tied up in an area that is subject to earthquake risk and increasing congestion that is causing renters many to consider moving to other areas. Furthermore, most rental property owners are realizing very low rates of net cash flow on their appreciated equity and now want to put that idle “trapped equity” to work to generate a nice steady income.
Whenever possible, we recommend that investors divide real estate investments among multiple properties in multiple areas to minimize risk. This is especially true for older investors who have worked hard to develop a sizable estate that they plan to transfer to their heirs and who do not have the time or interest to go back to work to regain possible losses that might occur if an investment sours.
To be sure, there is some extra work in having a diversified portfolio e.g., more tax forms need to be completed and more reports will need to be reviewed and filed. However, a diversified portfolio will reduce stress and create more reliable and stable returns and result in a higher likelihood of capital preservation.
Please contact us if you would like to explore the power of diversification.
BIO : Paul Getty
Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $2 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student and senior housing.Paul Getty’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, work-outs, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions.Paul Getty also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals.
Prior to founding First Guardian Group/FGG1031,Paul Getty was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 25 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M.
Paul Getty holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. He is a member of Institute of Real Estate Management (IREM), a Certified Property Manager Candidate (CPM), and a member of the US Green Building Council.Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered representative with LightPath Capital Inc, member FINRA /SIPC .
Paul Getty is a noted speaker, author, and actively lectures on investments and sales and management related topics. He is author of The 12 Magic Slides ,Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors , and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.
This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. 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. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. 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. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.
IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of LightPath Capital, Inc. Member FINRA / SIPC. FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities.
DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.