Owning and managing property in the Metroplex can be a great way to invest your resources and grow your long-term wealth; property generally provides a stabilizing influence on your portfolio. However, smart investors are always looking for ways to minimize their risk even further in a way that will maximize financial gain.

One way savvy business owners and investors achieve this is to diversify their investments. As an investor, you might be thinking, “Well, my investment portfolio is already diversified because I have holdings!” This is only partly true: unless you’re an investor in long-distance properties (which is tough to do without some kind of long-distance managing partner), your holdings are still subject to the market pressures in your backyard.

Property owners face other unique challenges:

• They don’t have plentiful liquid assets or spare capital to invest
• Most of their wealth is in their properties
• This leads to the classic “House Rich, Cash Poor” dilemma.

Besides, purchasing different types of income-producing properties outright to diversify can pose issues as well. Typically, property owners know how to manage one or a few different types of properties efficiently. Purchasing an income-producing property in a completely different class usually involves developing an entirely different business plan. Plus, when you’re self-managing, jumping from a few single-family homes in Dallas to duplexes in Fort Worth means more than just an added layer of complexity! Constant road trips in Metroplex traffic is probably not what you had in mind for your weekend plans.

So, what is the smartest way for you to diversify your DFW real estate investments while maximizing gain? An UPREIT, of course! An UPREIT, or Umbrella Partnership Real Estate Investment Trust, is an excellent way to diversify your real estate business without purchasing new properties outright.

How Does an UPREIT Work?

An Umbrella Partnership Real Estate Investment Trust (UPREIT) benefits your portfolio by helping you transition your local assets into a tiered ownership structure of holdings diversified by geography and type.

In exchange for the property contributed to the UPREIT, the investor receives units in an operating partnership that manages the collective portfolio. These units are no longer tied to the original property added to the UPREIT, which ultimately serves to diversify your DFW real estate investments!

The best part? Your contribution doesn’t trigger the capital gains tax! The transfer of property ownership to an UPREIT is not subject to the same tax liability as selling a property outright for cash. Once you convert your units into REIT shares, this usually triggers a taxable event. However, this option allows you to parcel out smaller portions of the assets you want to tap into.

Why Work With an UPREIT?

An Umbrella Partnership Real Estate Investment Trust can help you diversify your DFW real estate investments in many ways. What are some of the advantages to an UPREIT versus buying different types of property outright?

Experts Manage Your Properties

• A partnership allows interest in all of the properties of the REIT without requiring partners to manage the properties.
• This means that partners reap the benefits of having part ownership in many different kinds of properties.
• This protects against dips in the economy and other adverse financial conditions when the collection of properties managed by the UPREIT is geographically and categorically diverse.

Increased Asset Liquidity

• Owners who trade their properties for partnership in an UPREIT create flexibility in their assets.
• In other words, there is no need to sell off a whole property to obtain capital to reinvest or make another kind of purchase.
• Shares in the REIT can be sold for cash, much like any other publically traded stock.
• UPREIT units also happen to be easier to inherit: leaving behind a portfolio of properties for your heirs to manage is complex.

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Tax Deferral

Perhaps the most significant benefit of a transaction with an UPREIT is the fact that the transaction is completed on a tax-deferred basis. In other words, the owner does not recognize immediate gain on the transaction, and therefore, doesn’t have the same tax implications as if the owner sold the appreciated property for cash. This is because the owner does not acquire publicly-traded stock in the REIT outright but rather receives units in the Umbrella Partnership.

Income Stability

• Income from one or just a few rental properties can vary significantly with vacancies and maintenance expenses.
• However, since UPREITs encompass many different properties, the volume of income flowing back into the REIT tends to be more steady than self-managed holdings.
• This reliability in income means that dividend distributions among shareholders and partners in the REIT can be more predictable than those you’re responsible for managing.

Diversify Your DFW Real Estate Investments With an UPREIT!

• Could your DFW real estate business use some rejuvenation via a more varied property portfolio?
• Are you looking for ways to manage risk by diversifying your investments?
• Do you have appreciated property in an area with a quickly expanding real estate market?

If you answered “yes” to any of the above, an UPREIT is probably right for you! Thankfully, you don’t have to struggle to try and find the right UPREIT for DFW investors: take advantage of our guidance! At The Peak Group, we offer investors expert advice on real estate investment and partnership opportunities.

Your portfolio shouldn’t be a source of stress or fear: it should be your gateway to financial freedom! Get in touch with us to learn more about how creative investing techniques (like an UPREIT structure) can help you reach your wealth goals.