There’s more to your total wealth picture than just your mix of stocks, bonds and cash. For our next Money Series talk we’ve enlisted local realtor, Dan Stiebel, to expand our knowledge by offering his expertise on commercial real estate investing.
For sure, as a manager of marketable securities that trade on exchanges, I don’t invest in things you can see and touch. And, the investments I focus on are most certainly not local. In contrast, as Mr. Stiebel will explain, commercial real estate investing can be a very hands-on endeavor and is often an intensely local affair. I suppose that’s what puts the word, real, in real estate!
Let’s briefly touch on a few things Mr. Stiebel will teach us at his upcoming presentation.
To begin, predictable income is a need for most people, of all ages. Commercial real estate, if done in a business-like fashion, can offer the benefits of steady income through the collection of rent payments from tenants.
As Mr. Stiebel points out, if you choose to take on a mortgage to fund your real estate investment, there’s a certain satisfaction in knowing that your tenants’ rent is essentially paying down your mortgage for you. It can feel like forced savings without the sacrifice.
As they say, there are only two things in life that are certain; death and taxes. However, just as we can delay death (for a while, of course), some taxes can also be kept at bay.
To keep your attention, let me now invoke the name of Donald Trump. One can presume that he knows the tax code. More accurately, he probably knows the concept of tax deferral even better. The reason is, commercial real estate investing is chock full of ways you can defer and delay taxes.
Exhibit A is the concept of depreciation. Depreciation is a “non-cash” expense that recognizes that buildings wear out and will require replacement over time. The IRS allows real estate investors to book this non-cash expense to help offset their actual cash income. In this way, depreciation effectively shields – under defined rules – your real estate income from the tax man. If and when you sell your property, you’ll pay your taxes. Unless, you use the next tax trick, that is!
Exhibit B is the 1031 exchange. Imagine you’ve owned a rental property for many years. While your depreciation expense lowered your taxes, the flip side is it also lowered your original purchase price. Naturally, when you sell, there would be a bigger taxable gain. Using the 1031 exchange trick, the IRS allows you to find another real estate property – a swap – and keep the IRS at bay for yet another day.
So, there you go, Donald Trump and Dan Stiebel both know commercial real estate. Learn what they know at our next Money Series’ talk on commercial real estate investing to be held on Wed., Oct. 11 at 6:30pm in the McGuire Rm. at the Traverse Area District Library. To register, visit www.frontstreetfoundation.org or call (231) 714-6459