If you're an investor who's done any research into an "UPREIT," on the surface, it may seem like a cumbersome idea. The reality is that this real estate investment tool could be essential to the future viability of your assets!

If you've even started toying with the idea of investing through an UPREIT structure, then you probably have some very real pain points that have been leeching your resolve when it comes to your real estate portfolio. For each investor, the day-to-day struggles of self-management can be different—however, at The Peak Group, we consider them problems worth solving.

Young desperate and stressed businessman feeling depressed and overwhelmed working at office computer desk tired and exhausted defeated by business financial crisis problemA Problem to Solve

Investors that manage their wealth primarily through real estate know that managing income-producing properties can be lucrative—yet a great deal of work. Success hinges on well-managed and properly-maintained rental properties in a prime area for real estate growth. If you do it right, prices appreciate over time, and substantial gains allow you to keep investing.

For some owners, however, there may come a time in which owning a specific real estate asset or a burdensome number of assets no longer makes sense. This can occur for any number of reasons, be they professional or personal. Financial concerns like concentration risk and liquidity issues are some of the most common reasons to offload properties. Alternatively, day-to-day management issues like working directly with tenants, tackling property upkeep, and more can become taxing over time for large portfolios.

If you've reached this stage of exhaustion, you've also probably looked into property management in the past—but found your potential partners lacking enough to keep managing your portfolio alone. At this point, you're probably seeking an exit strategy—but you're still worried about retirement. We've been where you're standing right now, so we get it. Thankfully, there's a solution.

A Unique Solution

An investor may decide it's time to move on from managing a select portfolio of these types of "trouble" properties—but how do they go about it without costly taxes that eat into gains they've rightfully earned?

There's a particular option we champion at The Peak Group for those investors that want to:

Better yet, this option also minimizes the capital gains tax burden generally associated with exiting a real estate property investment. While one aspect or another may be accomplished independently, all of these positives can only occur within the unique and carefully planned UPREIT structure.

Selling property outright to boost liquidity could create a sizeable tax burden. However, holding onto property means the potential for poor market selling conditions if an emergency sale is necessary. Exchanging one property for another to diversify doesn't tackle the strain that comes from managing your portfolio alone, either. This is what makes the UPREIT structure so desirable for investors who need an "out."

Serious businessman standing in office room thinking making a decision

Understanding an UPREIT

An "Umbrella Partnership Real Estate Investment Trust” (UPREIT) is an investment structure that allows a Real Estate Investment Trust (or REIT) to meet property owners where they are in their financial goals. Weary investors have the ability to transform their individual investment properties into shares in the UPREIT.

In the simplest embodiment of an UPREIT, all properties are acquired and owned directly or indirectly through an umbrella partnership. The umbrella partnership is the entity which operates and collects income from the properties that it manages independently, which are then distributed to shareholders. For investors who have been self-managing their properties for too long, this is a huge perk: you still get to enjoy the income from investment properties—without the daily grind.

While the share units a property investor receives in exchange for their contributed properties are generally equivalent, such a transfer doesn't trigger a taxable event.

Who Can Benefit From an UPREIT?

An UPREIT structure makes sense if a property owner wants to achieve any of the following goals while managing an appreciated property or properties: 

  • Deferring capital gains taxation
  • Eliminating the hassles of owning real estate like tenant and property management
  • Diversifying through varied ownership
  • Upgrading to institutional quality real estate
  • Receiving consistent, quarterly income.

In addition‚ the following real estate holdings are good candidates for an UPREIT transaction:

  • Family-owned properties with unresolved succession issues
  • Properties with tenants
  • Partnerships that need to be dissolved
  • Long-term assets with very low basis
  • Surplus property generated by consolidations
  • Property owners that are "house rich," but cash poor.

    Happy successful businessmen shake hands after group negotiations, gratitude handshake

The UPREIT Revolution

Now that we've discussed what an UPREIT structure actually is, the problems it solves, the solutions it provides, and the organizations or individuals this unique structure could most benefit, it is time to discuss how this investment method is changing the financial planning landscape.

UPREIT structures are providing real estate heavy investors unique opportunities to achieve amazing financial results. These revolutionary partnerships and trading structures are providing diversification to property holders with a tax deferral—which is an advantage that cannot be overstated.

Unlike those who hold stock in a publicly-traded company who are trying to trade them for tax-deferred mutual fund shares, someone who holds real property can contribute that property to the umbrella partnership of the UPREIT without an immediate capital gains tax. The utter simplicity and innovation of the UPREIT structure has revolutionized the REIT landscape. While UPREITs aren’t for everyone, they can be an extremely valuable planning tool for the right real estate investor.

Is the UPREIT structure right for your investment portfolio? Let The Peak Group be your guide! We've been navigating the ins and outs of investment property for years—and we're ready to put that to work for you! Get in touch with us today for more information about how an UPREIT partnership might benefit you!

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Posted by The Peak Group on February 6, 2020