Many property owners can realize far greater cash flow on appreciated equity in rental properties that they own. Owners often make the mistake of calculating return on their investment by dividing current rental income by the original investment they made in the property.
As an example, suppose you put a 20% down-payment of $40,000 to buy a rental home for $200,000 with a loan of $160,000 in 1990. You are now receiving $4,000 net income annually after debt service and other expenses. This is equivalent of a 10% return on the original investment of $40,000 which may make you feel good until you consider the following:
During the 28 years, you have owned the property, the property has appreciated from $200,000 to $800,000 and the equity in the property has increased from $40,000 to $640,000. Your $4,000 return divided by $640,000 of the current appreciated equity is less than 1% instead of 10%. Furthermore, you have taken all your depreciation benefits and must now pay more taxes on your annual rental income. What should you do?
It may be far better to sell this property and invest the proceeds of $640,000 via a 1031 Exchange (actual proceeds may be less due selling cost etc.) as down-payment to buy one or more properties that can produce returns of 5% to 7% or higher on all of your appreciated equity. If your replacement property has income of 6% after expenses (average return for DSTs), you would realize ~$38,400 of annual income compared to $4,000 currently (6% X $640,000 = $38,400). And you would have fresh depreciation to write off to keep most of that money in your pocket!
A question an investor may ask is, what about the capital gains and applicable taxes? That is where 1031 Exchange comes in to play. IRS allows investors to re-invest the proceeds from the sale of an income property and reinvest into another like-kind exchange and defer 100% of applicable taxes
We offer a wide range of wholly owned properties or fractional ownership interest in for investors to do a 1031 Exchange with a minimum investment as low as $100,000 with cash flow of 5% to 7%+ paid monthly.
Please contact us at 877 375-3523 for more information.
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.
Disclaimer
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. Member of LightPath Capital, Inc.