Can I Convert 1031 Proceeds into a REIT?

 



Welcome to Fall

Can I Convert 1031 Proceeds into a REIT?

 Welcome to what feels like the first day of fall. It's nice and chilly out. Actually, I have a sweatshirt on. Something we haven't enjoyed in a long time. Yesterday, I was at the park with the dogs and I actually had to have a jacket on. It was nice. 


Tax-Free Real Estate Investments

What Is A Good Sale Price For My Property? 🦅 🌎 ⚓️

Hope you saw the comment, But the big question you have to ask yourself is, Can you convert?


Your home sale proceeds into a real estate investment trust without a tax consequence. And the answer is quite possibly, maybe, here's the thing that I've been talking to people about, and this is not advice. This is not legal or tax advice.


I do not offer it. I offer ideas so you can talk to experts, which I have at my fingertips, or you can go get it yourself. I don't care, but these are just different ideas. You can go ask your tax consultant or your lawyer, these questions and say, can I do this? This guy named Vito told me that this was an idea.

Let's say that you have a house that you've been living in for the last 10 years, whatever. 


Understanding 1031 Exchange

How do you convert that into a non-taxable event? You could move out of the house and rent it for two years. That becomes An investment property. So if I moved out of this house today, two years from now, I can call the IRS and say, this has been an investment property for two years.

I now plan on selling it. I'm going to do a 1031 exchange. That's the legal code for allowing you to do that. The 1031 exchange allows you to take the proceeds from one real estate sale, and move it over to another real estate. Property without tax consequences.

It's like a rollover 401k, the pre-tax type of thing when you're with your retirement that the government wants you to do this because they know that if they double down on that money, eventually they'll get theirs. Again, not tax advice or legal advice. Technically the IRS code says you can't buy stocks, securities, or any kind of investment other than real estate, which is a like-kind investment, unless you do something like this.

And it's called an up REIT, an umbrella partnership, real estate and investment trust. You need to talk to your tax accountant and your tax lawyer or your real estate lawyer to make sure that this is correct so that you don't get yourself in trouble.

Don't just say, Hey, I saw this on Tick tock and this guy named Vito said, this is a great idea. So it's legal. I can't tell you that, telling you that this is the way people are doing it, but you have to use the right people to do it.1031 exchange people can help you guide the way. Just like I help you guide the sale transaction negotiation and marketing. I do all that for the sale of your house. I'm not an expert in everything. I go to the people that are experts. So when you want to do that, use a 10 31 exchange to move the money into a REIT, you can do it.

Are there pros and cons to a REIT? Yes, there are always pros and cons to everything you do, The pros of a REIT are portfolio diversification. So you can put money in a stock market, put money in ETFs and bonds. And all sorts of different things, as well as REITs, which you should absolutely invest money into REITs.

Vanguard BlackRock and other companies have REITs what's a REIT? It's a real estate investment trust. TA REIT aims to grab money from different people and give you a certain percentage of that trust. And allows you to take that money, let's call it 10 million, and put it down on an apartment or a commercial property. 

So the bank can fund the other part. So it's a 20 percent deposit. The bank will give you 80%. That allows you to do that. And with that REIT, you get a certain portion of that back every quarter, every month, depending on how it's set up. It could be every year you get a big lump sum and allows you to do that.


Pros and Cons of REITs

Pros and Cons of Investing in REITs

REIT is a great vehicle for you to research and get some money into and use. There's also something called a syndication where it's more of a partnership. Ownership and syndication are more like a partnership where sometimes you have voting rights, but you take on more risk, which means you get more money back.

So an example is with the REIT, you might get 5 percent ROI. With syndication, you might get 15 or 20 percent every year, cash on cash. So look into it. It's accessible. You might be able to buy fractional shares on it and you don't have to buy a whole share, 

You could do that with all sorts of stuff. And it depends on the REIT. And then there's passive income. Again, that's what I was just talking about. And there's liquidity you can sell into a REIT pretty quickly, just like stocks and bonds, but it's a taxable event.

If you pull money out of the stock market, you have to report it to the IRS. Long-term short-term capital gains. It's the same thing with the REIT, go get tax advice from a tax advisor and competitive returns. Yes, absolutely. You're going to be seeing upwards of nine, 10 percent sometimes in decent REITs, So the cons of REITs is, I told you you're going to pay taxes. It's passive income. You don't get a shareholder comment in it, but you do get an interest rate risk. So if the market bottoms out, like what's happening right now with all the big apartments, you might see that money just disappear.

There's a risk in it. It's not very safe market volatility. 


Navigating Investment Risks


We're seeing a bunch of apartments. I've been telling you for the last couple of months that apartments all over the U.S. are starting to go into foreclosure. That means those REITs might disappear if you use a REIT, With an inexperienced person and they oversold you you could be losing some money.

Be very careful, You don't really have control Remember I told you with a REIT, you don't have voter rights with syndication. You do, depending on how they're set up. It's like a mutual fund. You don't have control of that. So you have to let go. It's like a mutual fund, but it's all focused on real estate. And yes, some charge a 2 percent management fee. There's another group that I'm looking at right now. They charge 5%. It's huge. 

Mutual funds do the same thing. Bond managers charge the same thing as financial advisors. Do the same thing, right? Cost money to make money navigating Investing. Do your homework if you're going to do something like that talk to your friends talk to your financial advisor dig deep into Research and figure out what the best strategy is for you This is not advice.

This is me pointing you in the right direction so you can ask for advice from the right people Yes, it's possible to invest. 

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Register to vote today

Voting's coming up. I don't care what side of the aisle you're on. I have friends on both sides and they both say the same thing about each other.

It doesn't matter to me. It doesn't matter who's in office. I'm still doing my job, but register to vote. You have until October 21st to mail in or, register online. And you can always do it the day of if you want information go sign up for my inspection thing. 

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Bank of the Week: East Palo Alto



What is this one? Oh, Bank of the week. Guess where this is? East Palo Alto used to be the murder capital of the world. No, it's not. It's actually a little bit safer. There you go. You get 22 pictures of this house. Look at that.

House Tour: Bank-Owned Property


How not to sell a house? This is bank-owned. This is what it is. And the bottom line is it's worth 884, 000. And it just came up on the market seven days ago. It's not my listing. Three bedrooms, one bath, 960 square feet. Built in 1944, and whoever did the comps on this probably looked at Palo Alto numbers because this thing should be sold at about 500, 000.

Yeah, it's just the condition it's in, look at that floor, destroyed, cockroaches, 


Apple House of the Week: Homestead Road

Homes for sale near Apple




Oh, yeah, Apple House of the Week, look at this bad boy. This is on Homestead East Homestead Road. You guys want to spend two and a half million dollars on a house on a busy street.

Three bedrooms, two baths, 1, 390 square feet built in 1955. Let's take a look at this gem right here. And you have an amazing view of a spaceship. Yeah. Look at that. Nice little ranch. I think that's the house right there. Ooh, they partied it up for you. Put some can lighting, some stainless steel.

Wow, they went overboard on the staging there.

Here you go. All for the low price of 2. 3 million dollars. And you get the benefit of walking right across the street to work. That's awesome. Congratulations. If you want to become a buyer, think about looking at different homes, and download this buyer checklist. 


Mountain View Home of the Week

Mountain View home of the week



Downtown Monterey or downtown Castro Street. Let's take a look at this one right here. Plum court right by the freeway, right by the train tracks of cool. 2. 2 million Lord four bedroom, three bath, 1, 847 square feet built in 2000 it's on a cul de sac, but you also get to hear the freeway noise the train noise, and the central expressway noise. Four bedrooms, three baths. 1840 square feet. Just listed today. Here we go. Good luck with That looks brand new. You know where I live. I live about a half mile from the standard flight path, so I get to see planes fly through and You can't hear him. You absolutely can't hear him. But it's not like flies over your head and shutters your windows. So I'm very cognizant of being close to noisy places. We live about a half mile away from the train tracks off of Monterey.

If you're quiet and you're outside, you can absolutely hear it. You can hear the noise of the horn and everything, but it's not, doesn't rattle your house when you're this close. I even sold a house on the corner of Santa Teresa Boulevard years ago. And my biggest thing was, you're not going to like it.

That noise will get to you. So when you're spending 2 million on a house. Look how close you are to Moffitt, right? So Google guys can fly in and out of there. It will disrupt your sleep patterns. It will disrupt you over time. So it's just something you have to be aware of.

Am I saying you absolutely shouldn't? No. Just saying it's something that you have to figure out if you can handle that or not. I personally can't do it. That's why I never bought near a freeway or a flight path or what have you. So there you go. Oh wait, I'm not done yet. We have to do 40 days on the market. 


Real Estate Market Trends


We have 196. Everything seems to be going up a little bit. Not intensely but the market's slowing down just a tad bit. I'm seeing that the market's taking a breather mostly because all the kids are back in school. Everybody's going, Oh, election time.

What's going to happen if that candidate gets in, then the world's going to shudder and we'll never have democracy, whatever. Both sides are saying the same thing. Straight up. Watch 500-foot view. It's all the same stuff. So we're seeing a little bit of a breather. Rates are going up a little bit.

So things are slowing down. Absolutely. And my real estate Sherpa, Ryan Lundquist, who is an appraiser up in Sacramento, showed me this and I'm like, Oh, I'm going to copy it and share it with them. 


Santa Clara County Housing Data

REO of the Week

So here's the data for Santa Clara County from 2019 to 2024 year to date. The median price for 2019, five years ago was 1.2 million, five years forward, 57, 56 percent higher. I don't understand affordability in this, but it is what it is. It's the same thing with the average price, 50 percent more, right? The monthly supply is so much lower. And the average day on the market is 21. It's actually 17, but this might be for, single-family median days on the market is actually 10. So these numbers are all showing that the market's contracting or the supply is contracting demand. Might be staying still, even going down a little bit, but not enough to affect prices. Prices have gone up exponentially. 


Final Thoughts and Market Predictions


Is there a crash imminent?

Who knows? We can go into World War Three Some people say we're already there. Some people say the economy is going to cry. I don't know. We don't know. Who knows? My bet is I'm buying another house here pretty quick. So let you know.


Closing Remarks

And the last thing I'm going to ask you is please share. If you like this, please send out this information to your friends, and let's get a conversation going. Thanks for watching. I'm Vito with Abitano. We'll see you out there.


Vito Scarnecchia Real Estate Broker, Veteran, Dad DRE#: 01407676 We’re Hiring! 408-705-6817 Vito@abitano.com Website: abitano.com https://www.onereal.com/vito-scarnecchia-1 update your home value: https://hmbt.co/bT7qRJ RELOCATION@ABITANO.COM FREE DESKTOP APPRAISAL https://www.propertyrate.com/agent/vitoscarnecchia If you are moving ANYWHERE in the world - Let me know! I know a LOT of AMAZING Agents! Book appointments here: https://calendly.com/abitano/15min Home Buyers Course YT YouTube.com/SanJoseLiving IG https://www.instagram.com/abitanogroup/ FB https://www.facebook.com/vito.scarnecchia/ LI https://www.linkedin.com/in/vito-scarnecchia/ Blog http://blog.abitano.com/ POD https://spotifyanchor-web.app.link/e/oxdH1Hwfcvb Professional Photography by Kim E https://photosbykime.com / Local Real Estate Market and Home Value Report https://hmbt.co/bT7qRJ Financial Intelligence https://docs.google.com/forms/d/e/1FAIpQLSc0R5pjHIAPguZ5GDEB-fTbGJXKpWK3coK9Khymv_GTWkMnyQ/viewform?usp=send_form https://www.onereal.com/vito-scarnecchia-1 Willow Glen's five most expensive homes https://youtu.be/3A_E2ck0ePg


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