REI INK

Data – The Secret Weapon

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Use Data to Make Better, Faster Property Investments By Dave Obert The housing market has become a melee of activity. As prices continue to surge, so does competition. The demand for homes continues to outpace supply, with the average home selling above its list price for the 39th consecutive week. As the market gains velocity, investors must be tuned-in at all times, and many are increasingly relying on data to make better informed decisions. Francis Bacon said, “Knowledge is power.” This common phrase holds true for investors. It has been shown that data-driven insights provide the vital metrics necessary to pinpoint the right properties and to maximize returns. But be honest: Is data driving your investment decisions? The landscape of investing has changed. Data and the development of powerful PropTech tools have transformed the way investors approach new opportunities. Investors who do not keep pace with the market evolution leave themselves open to miscalculating risk and the associated reduction in returns. Time is of the Essence Data can help identify and reveal unseen risks that exist in your market. Helpful data could range from local infrastructure, such as fire hydrant proximity, to a history of destructive weather that may have negatively affected the property. While a seasoned property investor may know what they are looking for, it is only through robust, comprehensive data and analytics that a more precise, unseen value of a property can truly be uncovered, especially at scale. Given the speed of information and competition, buyers and sellers do not have the luxury to spend days or weeks making decisions. “Sleeping on it” is no longer an option, and responses to offers, contingencies, and emergent issues must happen quickly to remain competitive. Unfortunately, acting quickly can lead to mistakes. In just a few short decades, the digital revolution transformed the way consumers and investors purchase, finance, and sell homes. While the last decade saw the impact of the internet come into full bloom, the next decade will be shaped by those who embrace the transformative power of accurate and actionable data. A massive opportunity still exists for those that recognize the strategic value of incorporating unique data points into their vital business processes. The challenge is not just accessing the data, but also knowing how to apply it. A Case Study Recently an investor shared a story that is far too common. She had made an initial offer on a property in a prime location within a major city. It was her first purchase in the downtown area. It needed some renovation work, but she felt that a return was guaranteed. She submitted an offer and quickly received a counter. Before she could respond, a flood of buyers came out of the woodwork running up the price by nearly 20%. As she watched the price surge, her investment outlook started to dim. In the hopes of not letting the home slip between her fingers, she responded with a much higher counter than she had budgeted for. She emerged victorious. This, however, is not the end of the story. As is often the case, the investor relied on her experience as opposed to data-based information. As this was her first property downtown and she knew the home needed renovations, she relied on her prior experiences with suburban housing—hoping it would help her estimate the cost and impact on the value once relisted. Also, she felt that she had a broad understanding of the area, its desirability, and what the market would bear, but lacked the concrete specificity she needed to accurately assess her investment. Predictably, this story does not have a happy ending. New to the area, she struggled to find qualified contractors within her budget and labor and material costs were higher than expected. Construction costs and expenses resulting from poor maintenance averaged 30% more than she anticipated. Her renovation budget dwindled. Before she knew it, she was over leveraged and forced to sell. Defeated and hoping to recoup what she could, she let it go in a fire sale to another investor. This story is all too common. In many locations across the US, purchasing a property requires quick reflexes, but it is vital that the decisions made are grounded in data and analytics. In the case of our investor, she failed to see what data would have told her were red flags when acquiring this property. She did not get the full perspective that would have helped her mitigate the risk and the regional challenges of an unfamiliar area. Ultimately, she learned what more and more real estate investors have discovered—success comes from data and the proper PropTech tools. Rewriting History So, let’s take a moment and rewrite our investor’s story. While still out of her comfort zone, Verisk armed our investor with information—the most important tool in an investor’s belt. By leveraging accurate, up to date local pricing data, she had a clearer understanding of the property and the surrounding market. She understood the unique market conditions of the area and how construction costs could impact her return at point of sale. Utilizing the provided information, she now had insight into specific renovation costs and was able to prioritize their importance and impact on the return on investment. Equipped with better knowledge of the area, she knew the restraints of shipping material into the city and the increased costs of labor and material. When the rush of offers commenced, she knew better than to get caught up in the whirlwind of activity and submitted an offer that she was comfortable with—ensuring she would not be overleveraged and that she would be more likely to achieve the return she expected. Did she win the property? Maybe, maybe not. However, she made the correct decisions for her investment based on a foundation of facts, data, and analytics. If she did win, she won without getting into perilous waters and was better equipped to get a maximize return on investment. The bottom line is that investors

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Housing Markets to Watch in 2022

By Carole Vansickle Ellis As 2021 drew to a close, real estate investors began looking forward to the 2022 real estate market with the now-all-to-familiar word in the back of their minds: “unprecedented.” When COVID-19 first breached U.S. shores in early 2020, many investors feared another housing crash. Instead, many facets of the market boomed. As the pandemic dragged on into 2021, many commercial investors feared the “end of office space” or a massive market softening when foreclosure forbearance programs and eviction moratoriums ended. Instead, all indications are, so far, that while there may be a slight deceleration from the wild price increases of 2021 in 2022, there is unlikely to be a true crash or, in many markets, even much of a slowdown. For real estate investors, this type of national housing heat represents a tricky situation since acquiring properties at the top of the market can be risky and the unpredictable sway of public health policy can, at a moment’s notice, change everything. With the complicated, arguably overpriced, and yes, “unprecedented” nature of today’s residential and commercial real estate sectors in mind, REI-INK has selected five housing markets (and a bonus sidebar) to watch in 2022. These markets have been selected based not only on their current price trajectory but, equally important in today’s market, their recession- and pandemic-resistance. Furthermore, we placed high value on a market’s potential inventory and how that inventory might affect pricing specifically in 2022 as well as identifying interesting areas that may not have been squarely in the spotlight in 2020 or 2021. Here are REI-INK’s Housing Markets to Watch in 2022: Tampa-St. Petersburg, Florida The Tampa-St. Petersburg area often flies under the radar because it is generally considered a “secondary” market rather than a primary market like larger southeastern metros. However, this market has plenty to recommend it in 2022, including relative affordability, a solid projected population growth of about 1.3 percent paired with employment and household growth of 1.6 percent and 1.7 percent, respectively, and an excellent urban and suburban planning record. As more American workers elect to take positions with employers who permit remote work much or all of the time and, as a result, begin looking for temperate climates in which in live, Florida as a whole is emerging as an extremely hot market. Tampa-St. Petersburg residents live between 45 minutes and about two hours from the beach, enjoy year-round outdoor recreation, and can have their pick of existing homes or new construction. PricewaterhouseCooper has named Tampa one of seven “Super Sun Belt” magnet cities for 2022, indicating that PwC analysts expect Tampa to continue to be a “migration destination for both people and companies” and grow more quickly than the U.S. average in terms of both population and jobs. Magnet cities also tend to have demographics that are “skewed toward faster economic growth prospects with higher proportions of Millennials and Gen-Xers and relatively fewer seniors and retirees… [as well as being] preferred markets for investors and builders,” PwC researchers wrote. Investor demand in Tampa-St. Petersburg going into 2022 is relatively strong for rental properties, fix-and-flip deals, and development opportunities. Thanks to a powerful business culture boasting recession-resistant institutions like Tech Data (~14,700 employees), medical manufacturing services provider Jabil (~39,100 employees), and JPMorgan Chase (~302,000 employees), among many others, Tampa’s local economy is in prime position to attract all-important Millennial homebuyers in 2022 as well as many tech and financial service providers. A prime location on the Florida High Tech Corridor also benefits the local market’s 2022 potential. 2ndTop Homebuilding Prospects in 2022PwC 5thTop Overall Real Estate Prospects in 2022PwC 9.6%projected year-over-year sales growthRealtor.com 6.8%projected year-over-year price growthRealtor.com 3rdTop Florida Markets for Construction Activity (Summer 2021)Yardi Matrix Raleigh-Durham, North Carolina Whether you specialize in new-home construction or prefer renovating existing properties, Raleigh-Durham promises to be a strong market with some remaining potential for growth in 2022. Not only has the Urban Land Institute (ULI) ranked this area sixth on its “Hottest Housing Markets for 2022” report, but ULI analysts explained that the ranking was due, in large part, to a ripple effect from the growing appeal around Charlotte, North Carolina. Analysts describe the market as having “a big city feel for a small-or moderate-city dollar,” and add that the area has long been a major player in the finance industry. PwC also ranked Raleigh-Durham second for “overall real estate prospects” and first for “homebuilding prospects” in 2022. Raleigh-Durham is considered a “Supernova Magnet City” for 2022 according to the PwC/ULI “Emerging Trends” report, meaning it is one of the fastest-growing metro areas in the country. All three new “Supernova” cities – Austin, Texas, and Nashville, Tennessee are the others – are noteworthy due to their popularity with both developers and investors. With defining attributes like “tremendous and sustained population and job growth well above national averages,” Raleigh-Durham and other supernova cities are especially attractive to young Millennials, many of whom may wish to become first-time buyers in the near future or may find themselves compelled to rent in order to live in the type of residence and location they prefer as they enter middle adulthood. 2ndTop Real Estate Markets for 2022PwC 1stTop Markets for Building New HomesPwC 6thHomebuilding OpportunityNational Association of Realtors (NAR) 4thEmerging Housing Market Index (Raleigh)Wall Street Journal/Realtor.com 4thTop 10 Housing Markets for Millennials in 2021NAR Atlanta, Georgia With one of the highest numbers of foreclosure starts in October 2021, Atlanta represents a great deal of potential for real estate investors, especially since the city is one of the most affordable 24-hour cities in the country. Ranked 8th on PwC’s “Top 10 Real Estate Markets for 2022” and 9th by the same company for “people looking to build new homes,” investors are likely to find relatively more opportunities to acquire assets in Atlanta and the surrounding area than in areas closer to cities of comparable size. Also, unlike many comparable metro areas, Atlanta has plenty of room for new construction in its suburbs, although prices in

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How Equity Might Save Homeowners in Foreclosure

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What it Means for Investors By Rick Sharga The anticipated wave of foreclosure activity due to the COVID-19 pandemic has failed to materialize, due in large part to concerted, and surprisingly well coordinated efforts by the Federal Government and mortgage industry to prevent unnecessary defaults from happening. The most obvious actions were part of the government’s CARES Act: a moratorium on all foreclosure activity, and a mortgage forbearance program that gave any borrower with a government-backed loan (loans backed by Fannie Mae, Freddie Mac, the FHA, VA and USDA) a six-month reprieve from making mortgage payments, with an option for a second six-month grace period. The Biden Administration extended the foreclosure moratorium through July 31, 2021 and added a third six-month payment holiday to the forbearance program. As the moratorium expired, the Consumer Finance Protection Bureau (CFPB) stepped in and enacted new enhanced servicing rules that required servicers to engage with distressed borrowers for a period of at least 120 days, which had almost the same effect as the moratorium, making it difficult for servicers to initiate foreclosure proceedings on seriously delinquent borrowers. There were exceptions to these new rules that allowed servicers to begin foreclosures: loans that had been 120 days delinquent prior to the moratorium; loans on vacant and abandoned properties; cases where the borrower had been unresponsive to servicer outreach; and cases where all possible loan modification options had been exhausted. After the end of the moratorium, foreclosure starts did increase for three consecutive months before retreating slightly in November, according to reports published by ATTOM, but foreclosure activity was still running between 60-70% below where it had been prior to the pandemic in 2019, and at its current pace seems unlikely to reach those pre-COVID levels until sometime late in 2022. Why a Foreclosure Wave is Still Unlikely Expecting a wave of foreclosure activity seemed entirely reasonable back in the spring of 2020, when the COVID-driven recession caused a 31% quarterly drop in the GDP (one of the largest quarterly declines in history) and claimed over 22 million jobs across the country. In most cycles, it is fairly easy to draw a straight line from unemployment rates to mortgage delinquency rates to default and foreclosure rates. But this time was very different. First, the economic recovery was almost as dramatic as the drop; the GDP rose by 34% in the next quarter, and as of December 2021, over 80% of the jobs lost had been regained. Second, many of the jobs that had been lost were relatively low-paying jobs in the service industry – retail, restaurants, travel, tourism, hospitality, and entertainment. These industries all have a high percentage of employees who are renters, rather than homeowners, so the fallout in terms of mortgage delinquencies was far less severe than what it might have been in a more “normal” recession, where job losses would have happened across the board. Third, the forbearance program has been an unqualified success. As of December, over eight million borrowers had entered the program, with just under a million remaining in forbearance. During this period, while seven million borrowers entered and exited, delinquency rates actually went down, suggesting that borrowers by and large were managing to make on-time payments even after leaving the program. In fact, recent reports from the Mortgage Bankers Association note that approximately 85% of the borrowers who have exited the forbearance program continue making their payments as scheduled – a far cry from the performance of distressed borrowers with deferred payments or modified loans during the Great Recession. Another critical difference between this cycle and the last one is homeowner equity, which currently sits above $23 trillion – an all-time high. During the Great Recession, over one-third of all homeowners were underwater on their loans, owing more than their homes were worth. Today that number is in the low single digits, and according to ATTOM, over 70% of homeowners have more than 20% equity in their homes. Surprisingly, even homeowners in foreclosure have a significant amount of equity, according to information recently released by RealtyTrac. Over 87% of the approximately 170,000 homeowners currently in foreclosure have positive equity, and only 6% are seriously underwater on their loans (owing at least 25% more than their homes are worth). Almost 45% have between 20-50% equity, and another 28% have more than 50% equity in their properties. Having equity does not prevent a borrower from defaulting on a loan. Foreclosures usually happen due to something that affects a household’s finances such as a job loss, divorce, or unexpected bills. But positive equity gives those borrowers an opportunity for a better outcome than a foreclosure sale – a chance to minimize damage to their credit score and use the proceeds for a fresh start. Borrowers who find themselves in financial difficulty, and unable to make their monthly mortgage payments can tap into this equity to either refinance into a more affordable loan or sell the property in order to avoid a foreclosure. According to the RealtyTrac analysis of homeowners in foreclosure in all 50 states and the District of Columbia, there are 16 states in which at least 90% of homeowners in foreclosure have positive equity. There are only two states – Mississippi and South Dakota – in which less than 70% have positive equity. Mississippi is also the only state with a significant percentage of seriously underwater borrowers who are in foreclosure (41%). Only three other states – Alabama (16%), Louisiana (16%) and Virginia (15%) – had higher percentages of seriously underwater borrowers in foreclosure than the national average of 6%.  Implications for Real Estate Investors For real estate investors interested in foreclosure properties, this situation requires a completely different purchasing strategy than the one used in the Great Recession. During that period, with home prices plummeting over 35% nationally from peak to trough, and a high percentage of homeowners in foreclosure underwater on their loans the two most prevalent strategies were to wait for lenders to repossess the properties

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Incenter

The Incenter Family is Raising the Bar on Performance in 2022 By Carole Vansickle Ellis In today’s economy, the ability to turn on a dime while identifying new issues and resolving them using innovative, far-reaching strategies is integral to the success of any company in the real estate industry. The Incenter family of companies, which the group describes as “best-in-class companies” in the mortgage lending, servicing, and real estate sectors, has been specifically cultivated to provide flexibility, efficiency, scale, and the nimble, expedited response times for the critical services that private investors and lenders require. “We are always looking for ways to work together, streamline real estate processes, and take extremely difficult transactions and make them smooth,” said Mark Walser, president of Incenter Appraisal Management. “We have numerous capabilities and, as a result, are able to develop and offer holistic solutions that cover a full deck – I like to call it a stack – of services to real estate investors and mortgage lenders.” Incenter currently boasts a stable of eleven companies offering services ranging from title services to appraisals to insurance solutions to capital markets trading and valuation to private student loan origination. Those companies are: Boston National Title Agency one of the largest independent title agencies in the United States Incenter Appraisal Management a national appraisal management company with more than 10,000 independent, professional appraisers focused on providing high-quality valuations, appraisals, and data services Incenter Insurance Solutions an insurance provider offering a broad range of insurance products, including commercial and residential insurance options in innovative combinations tailored to customers’ unique circumstances Agents National Title Insurance Company a next-generation title underwriter catering to a national base of independent title agents and the fastest-growing title insurance underwriter in the United States in 2020 Incenter Mortgage Advisors which provides trading and advisory services, analytics, risk management tools, and trans-action services for mortgage servicing rights (MSR) and whole loans Incenter Marketing a full-service marketing agency working across traditional and digital channels Incenter Solutions a business processing organization (BPO) providing a wide array of fulfilment services Incenter Agency Solutions a company dedicated to helping independent title and settlement companies grow via access to state-of-the-art technologies and services CampusDoor a pioneering company providing one of the country’s largest white-label loan origination platforms used by banks, credit unions, and other lending institutions through which undergraduate and graduate students may apply for private student loans and refinancing Incenter Tax Solutions a service designed to protect homeowners and commercial property owners from over-paying property taxes EdgeMac a risk-management service designed to help mortgage lenders and servicers practice what Incenter describes as “better-informed risk management while optimizing portfolio and asset performance” “Investors want the removal of friction,” observed Nathan Bossers, president of Boston National Title Agency. “As part of the Incenter family, Boston National Title is proud to be one of the tools in a toolbox that delivers meaningful value and impact to Incenter clients and customers.” Bossers said that being part of the Incenter family means Boston National Title is able to work closely with other industry leaders in other real estate sectors to deliver a smooth transaction. For example, he said, both real estate investors and lenders want “a quick, easy closing and to get to that closing table as swiftly and smoothly as possible,” but lenders also want highly specific title coverage that adheres to specialized underwriting standards while investors may need unique, reactional insurance products. “You need a provider that understands both sides and is able to deliver,” Bossers said. Thomas Price, president of Incenter Insurance Solutions, elaborated on the development of a holistic process for Incenter clients. “When we are integrating with any of the companies under the Incenter umbrella, we are often reacting to a specific call for something that is needed that is not commonly available in our industry,” he said. “Every deal needs something slightly different, and our companies are always working together proactively to come up with new strategies that will serve our clients.” Incenter leverages artificial intelligence to achieve these lofty goals as well. The companies all have access to state-of-the-art, AI-driven instant title decisioning information and other related analytics tools as do independent title and settlement companies working with the Incenter family. “AI is a huge part of developing a frictionless experience,” Bossers said. “It gives us and our clients access to the power of combined aggregation of information sources that is interpreted based on our underwriting standards and those of our clients, when appropriate. It makes a powerful, meaningful difference to both the investor and the lender.” Filling Very Tall Orders Every Day The goal of taking a complicated real estate transaction from “A to Z,” so to speak, is a very tall order, and not one that Incenter takes lightly. “We are always looking at the processes within the ‘A-to-Z’ to identify places where there is the most friction,” Walser said. “Then, you ask yourself, ‘How can I apply the technology, the service, the people, the processes against that friction to make things as friction-less as possible?’” For example, in the residential real estate sector at the present time, one of the biggest points of friction in real estate deals is the appraisal. “You can get into the transaction, but then you have to get that appraisal and, preferably, get it quickly,” he explained, adding that today’s appraisal process is complicated not only by a volatile market and national economy but also by the multiple phases of renovation and adding value during the course of an investment. “After the renovations are completed, the appraiser has to check back in and let the lender know things look good and they can move on to the next phase,” Walser said. “The problem is the paucity of appraisers and the sheer volume of activity in the industry over the last few years.” He noted that appraisals that would have traditionally taken roughly a week to complete may now take multiple weeks instead. By comparison, Incenter’s traditional appraisals

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Fix and What?

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Buy-to-Rent is Here to Stay…At Least Until the Next New Normal By Glenn Brooks It is no secret that property acquisition and disposition are tough subjects right now. Until recently, residential real estate investors were able to keep buying, remodeling, and selling single-family homes with great returns and not a worry in sight. But then 2020 happened and this once-reliable investment model got turned on its head. The landscape of this business has been remade with new challenges and new opportunities. The way forward lies in understanding what led to this point and in examining best practices that will help you navigate this new ‘new normal.’ The first sign came with the emergence of COVID-19 and the accompanying geographic shifts and lifestyle trends across the country. Those involved with property acquisition and disposition on a large scale began to struggle to get contractors to take bids and stick to bids. This significantly cut into margins and was not the only looming trouble spot. Due to the rising costs of raw materials, skyrocketing housing prices, and the tripling of construction expenses, many in this field ended up having to sell assets as-is. Suddenly the fix-and-flip template that had worked so well for so long was not exactly working anymore. The Move to Buy-to-Rent During periods of economic uncertainty, investors trend toward the safest bet. Which, starting in the middle of 2020, meant moving from fix-and-flip to buy-to-rent. This switch to buy-to-rent was made more enticing by the fact that the national average for monthly rents have soared 13% since last year. Additionally, single-family rental properties require a lot less cash upfront for repairs than homes that are flipped for sale. Just two years ago the average costs to renovate a single-family home were around $120,000- $150,000, while the average costs to renovate a rental were significantly less, ranging from $30,000-$40,000. And these fixes were largely cosmetic rather than high-end. Think new flooring and bathroom repairs rather than big structural changes. One recent real world example is from an individual with a traditional fix-and-flip project that could not be completed due to increasing prices of construction. When an institutional investor took a look at the deal, they too determined that it would be much cheaper to complete basic repairs and more profitable to rent the home rather than putting it up for sale. A few years ago it would be largely unheard of for investor clients to opt for rental income over income from a sale but that has surprisingly become the more reliable move as 2021 draws to a close. As mundane as it may seem, the permitting process has also been a factor that has led to an increase in investors buying to rent. Two years ago permits for major home renovations before sale were taking upwards of six months. But for rentals that time is much shorter – 30 to 45 days, and in some cases, permits are not needed at all or can be obtained before even starting construction. Beyond that, a lot of time can be saved by ordering things like appliances, windows, and cabinets while waiting on permits. Investors Need to be Reactive When it comes down to it you need to be able to react to what you are seeing in the market. There is increased competition for distressed properties since REO and foreclosures have mostly been put off due to pandemic-related moratoriums. And anyone who is aware of interest rates knows that money is cheap right now, so to speak. There are so many players in fix-and-flip lending and all different sources of financing available that local investors are snatching up properties before national investors can get wind of opportunities. This all has made it even more difficult to acquire properties and led some to buy directly from homeowners. As a result of all these realities there is more stock in the rental market than from old stalwarts in the form of distressed fix-and flip-subjects and this has become yet again another ‘new normal’ for our industry. Fortunately, things are beginning to normalize and acquisition models for both single-family rentals and single-family fix-and-flip will play well throughout 2022-2023. Homes are staying on the market a little longer and there has been some slight reduction in overall home prices. Moreover, we are beginning to see normalized pricing of construction materials, which are more readily available. There have still been some supply chain issues surrounding home appliances but if you are smart and order things in advance, it is generally not a problem. In some ways things feel a bit like 2007 again, except this time homeowners have equity and that is a very good thing. There is more inventory coming online and there are not as many bidding wars as there were even a few months ago. Plus, investors and buyers have the time to conduct the proper due diligence before going under contract. And there is profit availability on the horizon in 2022. As long as houses do not start depreciating, things in the broader market should remain stable and buy-to-rent is here to stay. At least until the next new normal.

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Asset Disposition and Tax Mitigation

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Your Best Investment Is in Comprehensive Financial Planning By Joe Fraser For real estate investors, disposition of an asset is an opportunity to re-invest capital into the next project, but not without first paying taxes on your gains – with a few exceptions. Your capital gain from a recent or upcoming disposition is a good problem to have. Fortunately, there are several means of deferring and/or reducing your tax liability through strategic real estate investing, while certain legislation remains in effect. We will cover three strategies: 1031 exchanges, qualified opportunity zones, and conservation easements. 1031 Exchanges and Delaware Statutory Trusts Most real estate investors are familiar with a 1031 exchange, which can be used to defer capital gains tax generated from a sale, so long as a) the relinquished property was held for at least 12 months and a day, b) the properties in the exchange are for investment purposes, c) the exchange agreement is put in place before close of escrow of the relinquished property, d) the replacement property is identified within 45 days and closed within 180 days, and e) the replacement property is of equal or greater value to the relinquished property, with a similar debt to equity ratio. Fewer investors are familiar with a Delaware Statutory Trust (DST) which can qualify for a 1031 exchange. A DST can hold a single real estate asset or multiple assets. DSTs are common within multi-family, commercial triple net lease (NNN), public storage, hotels, and other asset classes. Investors can purchase shares of the DST and earn passive income in professionally managed real estate assets, without having to be the active landlord. When the DST sells in 5-7 years to an institutional buyer, you can roll your gains into the next exchange, continually deferring your taxes from one exchange to the next. Qualified Opportunity Zones Another way to defer tax on capital gains is by investing into a Qualified Opportunity Zone (QOZ). The hold period is longer, a minimum of 10 years, but there is greater upside potential. Where DSTs generally have modest appreciation and proceeds that are subject to tax at the time of sale, QOZ projects which are developed from the ground up are often modeled with a return of capital within the first five years which can be used to cover the deferred taxes when they become due, and 100% tax-free gains distributed at the time of sale (no sooner than 10 years) that provide for a total return ranging from 3-5x of initial capital, depending on the project. Think about that: 100% tax-free gains. That’s the major benefit of investing in a QOZ over utilizing a 1031 exchange. QOZs can also accept capital gains from any sale, not just from sales of investment property as in the case of a 1031 exchange. If you’re selling your company or liquidating stock, a QOZ might be the right place to reinvest your capital gains. Federal legislation incentivizing development in these qualified opportunity zones can be used to your advantage to defer your capital gains tax as well as earn you long-term tax-free gains on the QOZ investment. Conservation Easements Other legislative incentives, such as for the conservation of privately held land, can be used to reduce your taxable income as well. Real estate in prime locations for development are valued based on the highest and best use of that property if it were to be developed, for example into a resort or a golf course community. If the owner of the property were instead to make a charitable donation by placing a conservation easement on the property, the owner receives an above-the-line tax deduction based on the value of the property at its highest and best use. A property with an initial purchase price of $1M and a highest-and-best use valuation of $5M, for example, could provide for a 5:1 tax deduction to the underlying investors in the property. In this example, investors who each put $100,000 into the initial property, can each utilize a $500,000 deduction off their taxable income after the easement has been placed on the property. There is a lot of scrutiny from the IRS with respect to the valuation methods used by investors claiming significant deductions (sometimes up to 15x the original investment) for donations to conservation easements. Inexperienced investors and bad actors have caused there to be a lot of negative attention around the use of this deduction, and rightfully so. These are sophisticated tax strategies and not advised for everyone. It is important to work with reputable companies with a long-standing track record of success when deploying these strategies in your tax planning and investment portfolio. Alternative investments like the ones discussed above represent a growing position in individual as well as institutional investor portfolios, as public markets continue to underperform relative to private investments with a similar risk profile. It’s not only about how much you make, but how much you keep. Accredited investors seeking diversification into alternatives should also focus on capital preservation through tax-efficient investments. As you plan for your upcoming asset disposition, consult with you CPA or tax advisor about their experience with these strategies. Seek input from professionals who have researched the court rulings and who have successfully implemented these tax strategies on behalf of their clients. The best investment you will ever make is in your comprehensive financial planning.  For informational purposes only. Not an offer to sell, or a solicitation of an offer to buy securities. Investing involves risk. Past performance is not indicative of future results. Speak to your financial and/or tax professional prior to investing. Securities offered through registered representatives of Benchmark Investments, LLC, Member FINRA/SIPC. Only available in states where registered representative is registered. JSP Capital Partners LLC and Benchmark Investments, LLC are separate entities.

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