What Can be Purchased Using a 1031 Exchange?

A 1031 exchange is a tax strategy based on Section 1031 of the Internal Revenue Code. It allows taxpayers to defer capital gains taxes by selling an investment property and reinvesting the proceeds into another asset. The exchange has strict rules regarding timelines but offers flexibility in terms of eligible properties.

How does it work?

A 1031 exchange is a tax strategy that allows investors to defer the payment of capital gains taxes when they sell an investment property and reinvest the proceeds in "like-kind" property. The concept of a 1031 exchange derives its name from Section 1031 of the Internal Revenue Code. By following the rules and guidelines established by the IRS, investors can take advantage of this tactic to potentially save significant amounts of money on taxes.

One of the key aspects of a 1031 exchange is the definition of "like-kind" property. The IRS broadly interprets this term, allowing for exchanges between different types of commercial properties. For example, an investor could sell a multifamily housing complex and reinvest in self-storage facilities, or sell raw land and purchase an office building. However, it's important to note that a primary residence cannot be exchanged for an investment asset under the provisions of a 1031 exchange.

Requirements for Investors.

To successfully execute a 1031 exchange, investors must comply with several important requirements. One key requirement is adhering to a strict timeline. After selling the original property (referred to as the relinquished asset), investors have 45 days to formally identify potential replacement properties.

Formal identification involves notifying a Qualified Intermediary, who oversees the transaction and manages a separate account for the proceeds. The identified replacement properties must fall under one of the following options:

Three-property rule: Investors can identify up to three potential replacement properties without any limit on their combined value. They have the flexibility to purchase any one property or a combination of the identified options.

200% rule: Investors can identify an unlimited number of potential replacement properties as long as the combined value does not exceed 200% of the sale price of the relinquished asset. This rule is beneficial for investors looking to downsize their holdings by acquiring smaller value properties.

95% rule: Investors can identify any number of properties, but they must acquire a combination of properties that equals at least 95% of the combined value. This rule is less commonly used and may decrease the chances of a successful exchange.

Adhering to these requirements is crucial for investors seeking to take advantage of the tax benefits offered by a 1031 exchange.

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After the identification process, the investor must complete their transaction within a total period of 180 days, including the initial 45-day identification period, in order to defer the payment of taxes. The Qualified Intermediary, responsible for overseeing the exchange, maintains transaction documentation and transfers funds from the separate escrow account to the sellers. Importantly, the taxpayer must not have access to the funds during the exchange process.

While a 1031 exchange defers capital gains taxes rather than eliminating them, this strategy can be used repeatedly. For instance, if an investor performs a 1031 exchange and later sells a property without utilizing the exchange, they will owe the deferred taxes. However, they can continue to employ the exchange method to swap properties in subsequent transactions. When the investor ultimately passes the last property to an heir, the heir receives it at the stepped-up value, effectively eliminating previous deferred tax obligations.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

·     There’s no guarantee any strategy will be successful or achieve investment objectives;

·     All real estate investments have the potential to lose value during the life of the investments;

·     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 potential for foreclosure;

·     These 1031 exchanges are offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

·     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

Growing Interest in the Industrial Market in 2023

A recent dramatic shift in the industrial sector has occurred. While the COVID-19 pandemic slowed retail and hospitality performance, the industrial market experienced an uptick in demand, driving rental rates upward and compressing cap rates. Driven primarily by a change in consumer demand and an increase in ecommerce trends, the industrial market sector is now predicted to lead major property types in U.S. rent growth.

In this article, we explore the recent shifts in the industrial sector and the factors that are contributing to this historical change.

Industrial Growth Through the Pandemic

Amid the global pandemic, industrial demand spiked as the demand for ecommerce products increased. At a time when expenditures should have declined, stimulus checks gave American consumers a unique opportunity to spend. According to Trading Economics, an organization that provides data on economic indicators and financial markets, consumer spending has seen a stable increase quarter-over-quarter since July 2020.

Through the law of supply and demand, a direct relationship between consumer spending and the industrial sector exists. In fact, analysts predict that the country may be witnessing a permanent change in consumer behavior that will ultimately transform the industrial sector. In the fourth quarter of 2022, CBRE, a global leader in commercial real estate services and investments, reported that “the U.S. industrial market had record rent and supply growth in 2022, as well as the second highest annual total of net absorption.”

Although supply chain challenges emerged early in the pandemic, any global issues caused by shortages were soon resolved, and the United States once again saw an increase in consumer spending. CBRE explains: “Supply chain resiliency was the main driver of demand for industrial real estate [in 2022] as companies tapped multiple ports of entry, used more onshore manufacturing, and hired third-party logistics providers to lower supply chain costs and protect against import disruptions.”

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Record New Industrial Construction

As a result of increased demand for distribution, warehouses, and transportation centers, as well as improved supply chain efficiency, industrial construction hit a record high in 2022. CBRE reports: “Construction completions totaled 134.5 million square feet in [the fourth quarter] — the highest quarterly total on record. For the year, completions increased by 24 percent to 446 million square feet, 73 percent of which was occupied by year-end.”

Demand, however, is projected to slow down in 2023. According to global commercial real estate services company JLL, “the 632.3 million square feet currently under construction is still a record-breaking figure but is largely unchanged from the previous quarter, indicating a slowdown in new ground breakings. Furthermore, speculative developments account for 84.4 percent of assets currently under construction.”

Another indicator of a potential slowdown, according to JLL’s “United States Industrial Outlook, Q4 2022” report, is the slowdown of global ecommerce giant Amazon. During the first two years of the pandemic, Amazon had doubled the size of its logistics network, a rapid buildout that exceeded rivals such as Walmart, the U.S. Parcel Service, and FedEx.

However, by September 2022, MWPVL International Inc., the firm that tracks Amazon’s real-estate footprint, estimated that the company had either shuttered or killed plans to open 42 new facilities, totaling almost 25 million square feet of usable space. The firm also reported that the company had delayed opening an additional 21 locations, totaling nearly 28 million square feet, and had canceled a handful of European projects, mostly in Spain.

Rent Growth in the Industrial Sector

It should be noted, however, that the industrial sector expands far beyond ecommerce. For some industries that aid in manufacturing, shipping, and production, growth has been evident, and increased demand for industrial space has spurred rental growth, so much so that it may surpass the multifamily sector, which has long reigned over rental growth performance.

CoStar, an industry leader in commercial real estate information, analytics, and news, suggests the industrial property sector “has the potential to keep leading all property types in rent growth resulting from continued demand and lower vacancy. This comes in part because the apartment sector, typically a close competitor in terms of its ability to generate out-sized rent gains, has shown clear signs of weakening demand.”

Meanwhile, CBRE reports that “average asking rent rose by 3 percent quarter-over-quarter [in the U.S. industrial market] and 13 percent year-over-year for a record $9.63 per square foot. Taking rent was [also] up by 6 percent quarter-over-quarter and 18 percent year-over-year.”

In addition, JLL claims leasing demand was active, vacancy rates remained low, and rental rates dramatically increased year-over-year.

The firm reports that “demand was very active with more than 115.7 million square feet leased this quarter in a variety of industry sectors. While e-commerce has accounted for a high percentage of industrial leasing over the last two years, we are starting to see demand diversify among other industries such as logistics and distribution, 3PL [third-party logistics], construction materials and building fixtures, traditional retailers, and food and beverage.”

JLL goes on to state that “2022 closed with an average asking rate of $8.80 per square foot, marking a 19.2 percent year-over-year increase.

 “As expected, the nearly record-breaking sum of new deliveries attributed to the vacancy rate increasing by 10 basis points quarter-over-quarter to 3.4 percent,” the firm reports.

Recent activity by Southern California's most active industrial buyer, Rexford Industrial Realty, indicates major players continue to believe in the future of the industrial sector. Indeed, the firm “expects to spend another $125 million on the purchase of property after acquiring a whopping $2.4 billion in properties in 2022 … [with the expectation that] industrial rents [continue] to go up to 15 percent in 2023 in Southern California.”

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Investing in Alternative Industrial Funds

As inventory becomes more limited, cap rates start to compress, and companies move to obtain larger space to accommodate steady customer demand, real estate investors are turning to alternative investments to penetrate the sector.

Those individuals in a 1031 Exchange are leveraging Delaware Statutory Trusts (DSTs) to defer capital gains and acquire a partial interest in strong industrial portfolios, while cash investors are turning to available funds. Through alternative investing, real estate investors can access this growing sector, potentially benefiting from the progressive appreciation that may be experienced by industrial properties into the foreseeable future.

Today’s alternative investment opportunities vary according to the level of risk and include everything from oil- and gas-related assets to strong-credited ecommerce tenancy. Individuals who are currently in or considering a 1031 Exchange or are looking for an opportunity to invest in the industrial sector should contact the team at Perch Wealth to learn how alternative investments may help them better meet their investment objectives.

 General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Tax Benefits of a 1031 Exchange for Real Estate Investors?

1031 exchanges, also known as Starker or like-kind exchanges, are a powerful tax-saving strategy for real estate investors. They allow investors to defer taxes on the sale of a property by using the proceeds to purchase a similar "like-kind" property. This means that instead of paying taxes on the sale of a property, the investor can put that money towards purchasing a new property, thus deferring the taxes. This can be a game changer for real estate investors looking to maximize their returns and minimize their tax burden.

In this blog post, we'll explore the tax benefits of 1031 exchanges for real estate investors. We'll start by explaining how 1031 exchanges work, and how they differ from traditional real estate sales. We'll then delve into the benefits of 1031 exchanges, including how they can defer taxes, how they can be used to diversify investment portfolios and how they can be beneficial for long-term wealth creation.

We'll also discuss the potential implications of the Tax Cuts and Jobs Act of 2017 on 1031 exchanges. By the end of this post, readers will have a solid understanding of how to use 1031 exchanges to defer taxes and maximize profits on their real estate investments. It's important to note that 1031 exchanges come with rules and regulations and it's always recommended to consult with a tax professional to ensure compliance and maximize the benefits.

Deferring Taxes

One of the most significant benefits of 1031 exchanges for real estate investors is the ability to defer paying taxes on the sale of a property. When an investor sells a property and uses the proceeds to purchase a similar "like-kind" property through a 1031 exchange, they can defer paying taxes on the sale until they sell the replacement property. This can significantly increase the investor's cash flow and overall returns.

To understand how this works, let's take an example of an investor who sells a rental property for $500,000 and is faced with paying a capital gains tax of $75,000. Instead of paying the taxes, the investor decides to use the proceeds from the sale to purchase a new rental property worth $500,000 through a 1031 exchange.

In this scenario, the investor has deferred paying the $75,000 in capital gains taxes until they decide to sell the new property in the future. By deferring the taxes, the investor is able to keep more of the money from the sale and use it to purchase the new property, thus increasing their cash flow and potential returns.

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It's also important to note that 1031 exchanges can benefit both commercial and residential properties, and it's not limited to one type of property, this makes it more versatile and useful for different types of real estate investors. Additionally, 1031 exchanges can be used in a series of transactions, allowing the investor to continue deferring taxes and compounding the benefits over time.

When compared to traditional real estate sales, 1031 exchanges can provide significant tax savings for investors. In traditional sales, investors must pay taxes on the sale of the property at the time of the sale, which can significantly reduce the amount of money available for reinvestment. With a 1031 exchange, investors can defer taxes and keep more of the money from the sale for reinvestment, potentially leading to higher returns over time.

It's important to note that the Tax Cuts and Jobs Act of 2017 has placed some limitations on 1031 exchanges, such as limiting the deferral of taxes to real property, not personal property and reducing the maximum exchange period from 180 days to 120 days. Investors should consult with a tax professional to ensure compliance with the new laws and to maximize the benefits of a 1031 exchange.

Diversifying Investment Portfolio

Another key benefit of 1031 exchanges for real estate investors is the ability to diversify their investment portfolios. By using the proceeds from the sale of a property to purchase multiple properties or different types of properties, such as multifamily or commercial, investors can spread out their risk and increase their potential returns.

For example, an investor who owns several single-family rental properties in one area may be at risk if the local economy were to suffer.

By using a 1031 exchange to sell those properties and purchase a multifamily property in a different area, the investor can diversify their portfolio and spread out their risk. Additionally, by diversifying into different types of properties, such as commercial properties, investors can take advantage of different cash flow and appreciation potentials.

In comparison to traditional real estate investing methods, 1031 exchanges can provide an efficient and tax-advantaged way to diversify investment portfolios. Traditional methods of diversification, such as buying multiple properties or different types of properties, often require paying taxes on the sale of each property, which can eat into profits. With a 1031 exchange, investors can defer taxes and use the proceeds from the sale of a property to purchase multiple properties or different types of properties without incurring significant tax liabilities.

It's important to note that investors must identify and acquire replacement properties within the 45-day identification period and 180-day exchange period in order to properly execute a 1031 exchange. Additionally, there are some restrictions on the type of transactions that qualify for a 1031 exchange such as related party transactions or cash boot. Investors should consult with a tax professional to ensure compliance with these rules and regulations, and to develop a strategy for diversifying their portfolios through 1031 exchanges.

In summary, 1031 exchanges can provide real estate investors with a powerful tool for diversifying their investment portfolios and reducing their tax liabilities. By using the proceeds from the sale of a property to purchase multiple properties or different types of properties, investors can spread out their risk and increase their potential returns.

Additionally, 1031 exchanges can provide a more efficient and tax-advantaged way to diversify compared to traditional methods. However, it's important to understand the rules and regulations, and to consult with a tax professional to ensure compliance and maximize the benefits.

Long-term Benefits

1031 exchanges can also provide long-term benefits for real estate investors. One of the most significant long-term benefits is the compounding effect of tax savings over time. When an investor defers taxes through a 1031 exchange, they can continue to defer taxes on each subsequent exchange, thus compounding the benefits over time. This can lead to significant tax savings for investors who engage in multiple exchanges over the course of their careers.

Another long-term benefit of 1031 exchanges is the potential for wealth creation. By deferring taxes and reinvesting the proceeds from the sale of a property, investors can potentially increase their returns and build wealth over time. Additionally, 1031 exchanges can provide investors with the flexibility to acquire new properties, to use leverage to purchase properties, which can increase the potential for profit, and to defer taxes on property appreciation.

When compared to traditional real estate investing methods, 1031 exchanges can provide long-term benefits that are not available through other methods. Traditional methods of investing, such as buying and holding properties, do not provide the same tax savings and wealth-building potential as 1031 exchanges.

It's important to keep in mind that 1031 exchanges come with rules and regulations that must be followed, such as the 45-day identification period and 180-day exchange period. Additionally, the Tax Cuts and Jobs Act of 2017 placed some limits on 1031 exchanges, and investors should consult with a tax professional to ensure compliance and maximize the benefits of a 1031 exchange.

In summary, 1031 exchanges can provide real estate investors with long-term benefits such as the compounding effect of tax savings over time and the potential for wealth creation. By deferring taxes and reinvesting the proceeds from the sale of a property, investors can potentially increase their returns and build wealth over time.

Additionally, 1031 exchanges can provide investors with the flexibility to acquire new properties, to use leverage to purchase properties, and to defer taxes on property appreciation. However, it's important to understand the rules and regulations and to consult with a tax professional to ensure compliance and maximize the benefits.

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Special Considerations for Commercial Properties

While 1031 exchanges can provide benefits for both commercial and residential properties, there are some special considerations for commercial properties that investors should be aware of.

One consideration is that commercial properties often have higher values and more complex ownership structures, which can make it more challenging to find suitable replacement properties within the 45-day identification period and 180-day exchange period. It's important for investors to work with a qualified intermediary who has experience with commercial properties to ensure compliance with these rules.

Another consideration is that commercial properties often have more restrictive zoning laws and regulations, which can limit the types of properties that can be used as replacement properties. Investors should be aware of these restrictions and work with a knowledgeable real estate professional to identify suitable replacement properties.

Additionally, commercial properties often require more due diligence and research, such as environmental assessments and property condition reports, which can add complexity and cost to the exchange process.

Finally, it's important to note that the Tax Cuts and Jobs Act of 2017 has placed some limitations on 1031 exchanges for commercial properties, such as limiting the deferral of taxes to real property, not personal property and reducing the maximum exchange period from 180 days to 120 days. Investors should consult with a tax professional to ensure compliance with the new laws and to maximize the benefits of a 1031 exchange.

In summary, while 1031 exchanges can provide benefits for both commercial and residential properties, there are some special considerations for commercial properties that investors should be aware of. These include the need to work with a qualified intermediary who has experience with commercial properties, the need to research and be aware of zoning laws and regulations, the added complexity and cost of due diligence, and the new limitations imposed by the Tax Cuts and Jobs Act of 2017.

It's important for investors to consult with a tax professional and knowledgeable real estate professional to ensure compliance and maximize the benefits of a 1031 exchange for commercial properties.

Are There New Rules for 1031 Exchanges in 2022?

Every year, concerns about the future of 1031 exchanges surface among investors. The ability to defer capital gains through a 1031 exchange has long been a point of contention among politicians. For those wondering whether changes to this real estate investing tool have been made recently, the answer is no. Rather, interest in 1031 exchanges has grown among investors throughout the country, and new questions have emerged. Here is a glimpse at the most common questions asked by today’s curious investors.

What happens when a 1031 exchange property is sold?

A 1031 exchange allows investors to trade one investment property (“relinquished property”) for another (“replacement property”) and defer capital gains taxes they would otherwise pay at the time of sale of the relinquished property. According to the Internal Revenue Service (IRS), the two properties must be “like-kind,” which under Section 1031 of the Internal Revenue Code is defined as any property held for investment, trade, or business purposes.

What are unrealized capital gains?

When investors and real estate professionals discuss unrealized capital gains, they refer to the gains made on an asset that has not yet been sold. If capital gains are unrealized, they are not taxed. Instead, these gains exist only on paper. Only when an investor disposes of the asset must taxes on capital gains be paid. 

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When can an investor use a 1031 exchange in real estate?

A 1031 exchange can be used anytime properties are exchanged as long as the properties meet the IRS’s definition of like-kind. Properties commonly traded in a 1031 exchange include commercial assets, such as apartment buildings, hotels and motels, retail assets and single-tenant retail properties, offices and industrial complexes, senior housing, farms and ranches, and vacant land. Additional trades that qualify as like-kind include investments in Delaware Statutory Trusts (DSTs) and residential properties held for investment purposes.

Can an investor avoid capital gains by buying another house?

Property owners commonly ask if they can sell their home and buy another house using a 1031 exchange. Unfortunately, the answer is no. Per the IRS, primary residences and vacation homes do not qualify for a 1031 exchange; only residential properties held for investment purposes for at least 12 months qualify.

Can an investor take cash out of a 1031 exchange?

For capital gains to be deferred, the total value of the relinquished property must be replaced, including both an investor’s equity and debt in the property. Therefore, if an investor sells a $1 million asset and has 50% leveraged, the investor will need to purchase a replacement property for $1 million and either leverage a loan for the $500,000 or pull from personal capital. Any cash taken out from the transaction is taxable.

Exceptions to the rule, however, do exist. One exception involves investing in a DST. A Delaware Statutory Trust is a legally recognized real estate investment trust that allows investors to purchase fractional ownership interest. When exchanging into a DST, investors can determine how much they want to invest and how much debt they want the DST sponsor to assign to them. A property owner could take out cash via a sale through this investment.

How does a 1031 exchange work?

A 1031 exchange requires investors to follow a strict timeline outlined by the IRS. Missing a deadline in the 1031 process generally results in taxes due on the relinquished property.

The timeline for a 1031 exchange starts when the relinquished property closes. The property owner has 45 days to identify their replacement properties and 180 days to close. The replacement properties must meet one of three rules defined by the IRS.

Do I need an intermediary for a Section 1031 exchange?

Yes! The IRS requires that 1031 exchanges use a qualified intermediary (QI) or exchange facilitator. After the sale of the relinquished property, all proceeds are held with the QI, who will release the funds for the acquisition of the replacement properties. If funds are held with the seller or any other party that does not qualify as a QI, the sale will not qualify for a 1031 exchange, and the seller will be responsible for paying capital gains.

How does a 1031 exchange work in a seller financing situation?

While seller financing is permitted in a 1031 exchange, it is not commonly used.

Seller financing reduces the immediate capital available for an exchanger; however, this does not exempt them from IRC section 1031 that states an investor must replace the entire value of the relinquished property. Therefore, an investor must identify how they will purchase their replacement properties when offering seller-financing. The most obvious solution is to offer short-term financing. This, however, does not solve most buyers’ problems. Instead, the exchanger can work with a qualified intermediary (QI) to sell the promissory note received from the buyer to cover the funds for the exchange. The exchanger can purchase the note or sell the note to the lender or a third party. Whatever option is used, all funds need to be with the QI by the end of the 180 days to prevent the proceeds from becoming taxable. Once proceeds are available, the investor can trade into a chosen like-kind property.

Can an investor still file a 1031 exchange after closing on a property?

No, a seller cannot file a 1031 exchange after closing a property because all proceeds from the sale must be placed with a QI. Therefore, if the exchange is not preplanned, the proceeds cannot be distributed appropriately for a 1031 exchange. Investors interested in a 1031 exchange should identify a QI before selling their real estate.

Can investors avoid capital gains tax if they reinvest?

A 1031 exchange allows property owners to defer capital gains when they reinvest and follow the rules outlined by the IRS. Reinvestment gives investors access to the numerous benefits offered by a 1031 exchange, including portfolio diversification and deferment of capital gains. Additionally, reinvestment via a 1031 exchange resets the depreciation schedule on the investment, providing investors access to additional tax advantages.

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What are the hottest markets for real estate investing in 2022?

The hottest market for real estate investing depends on an investor’s investment strategy. Is the investor risk-averse and looking for only stabilized assets in primary markets? Or are they willing to take on some risk for higher returns and invest in a value-add asset or a secondary or tertiary market?

To best understand which asset and market are best for you, contact a qualified 1031 exchange specialist. The team at Perch Wealth can guide you through the process and introduce you to 1031 qualified properties that are in line with your financial and investment objectives.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Should I Invest in Housing and Elderly Care?

Recent data from the US Census Bureau reveals that all baby boomers will be 65 by 2030, bringing the number of seniors in the country from 56 million to over 73 million. With a 30% increase in this population, we face an unexpected housing challenge: the demand for senior housing will far outstrip supply.

As a result, the sector is expected to grow over the next decade, creating an opportunity for investors. However, not all investments in the sector are created equal. In this article, we look at various aspects of housing and elderly care and identify the critical characteristics that investors should consider when investing in this asset.

What is the housing and elderly care industry?

Investments in senior housing vary according to the level of care the facility provides to its residents. Here is a quick snapshot of the various types of investments:

Independent living is generally for healthy and active people. Most communities offer private homes with additional services such as personal and community social activities and 24-hour security. Residents can enjoy the feeling of traditional independent living without worrying about home ownership responsibilities such as maintaining the property or paying bills.

Assisted living, also known as residential care or personal care, is designed for patients who are generally healthy and independent, but who may need help with activities of daily living (ADL). On-site staff are available to assist with activities such as bathing, dressing, and administering medications. Additionally, the staff generally help with laundry, cleaning, meals, and transportation. Many of these facilities also offer social activities. Memory care centers serve patients with cognitive disabilities. Staff are generally available 24/7 to assist residents in their daily lives, including those provided in assisted living facilities. Additionally, memory care centers can provide certain activities and therapies to improve memory and offer supervision to prevent residents from wandering.

Specialized nursing homes offer the most in-depth care, including residential medical treatment for the elderly. These communities are designed to provide 24/7 medical care to those who may have a chronic illness or need ongoing care from a healthcare provider. Skilled nursing home staff includes skilled nurses, most of whom provide care similar to that found in a hospital setting.

It is important to note that this is a general scheme of the differences between the structures. However, the exact services and care provided vary from facility to facility and may overlap in some cases.

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What should people consider when investing in the housing and elderly care Industry?

Investments in senior housing and care facilities have increased over the years, attracting more attention from institutional and accredited investors. However, being a relatively less popular asset class, many investors today are unsure what to consider when evaluating an investment opportunity. To help provide guidance, here are some characteristics, in addition to the type of assistance a property provides, to consider when looking at an investment overview.

1- How is the investment income supported?

Residents seeking senior housing must pay for their level of care. In some cases, insurance, Medicare, or Medicaid will cover associated expenses; however, most properties require a private payment. Here's what might be covered:

For those facilities that require private payment, residents have to pay out of their own pockets. For long-term care, some facilities may also review prospective residents' finances to determine if they can afford the facility.

Identifying which one is accepted in a facility can help provide guidance on an investment opportunity. While Medicare and Medicaid can guarantee a higher employment rate; meanwhile, private payment structures are generally better maintained. Although this is a hypothesis, it can give an idea of ​​the investment.

Real estate is all about location, and investors need to consider how a property's location and demographics will affect its ability to attract and retain residents. For long-term stable investments, investors should identify a location that is experiencing positive population growth, particularly among the population over 50. They should also identify a place that has the right demographics to support the facility and has surrounding services that can help residents. 

The assessment of these factors is also related to the mix of taxpayers. Facilities in vulnerable communities may have less favorable demographics; however, they tend to accept Medicaid, which provides a supported income stream. Meanwhile, communities in high demand, such as coastal California, tend to rely on private pay. While they offer goods they value highly, keeping residents can be more difficult during an economic downturn.

In determining whether an investment is good, investors should consider who manages the property. Performing proper due diligence on a trader's experience and finances can offer insight into an asset's long-term potential. For example, today's major carriers include Genesis HealthCare and HCR Manor, along with the largest national carrier, Brookdale Senior Living, which will provide more security to an investor than a single carrier.

Ultimately, investors must take a data-driven approach to determining whether a specific investment in housing and aged care is the right investment for them. Understanding the pros and cons of each investment opportunity, as well as how these above characteristics can affect performance, can provide insight into whether or not to consider an investment. How can I invest in the housing and aged care sector?

Those interested in investing in have more options

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Investors can invest directly in a new or existing development through direct acquisitions. Like other investments, this option requires the largest share of an investor. Unless they identify a property that is an absolute triple network, they will need to consider the management involved in the investment. There are also passive investment opportunities. Non-accredited investors can invest directly via shares. For example, they could buy stock in an existing aged care and housing company, such as Ensign Group, or invest money in a real estate investment trust (REIT). Meanwhile, accredited investors have the option of investing in a Delaware Statutory Trust.

Are you interested in learning more? Contact our team to discuss how to invest in the aged care and housing sector today.

(855) 378-3443