Cost Segregation Studies Are the Ultimate Tax Planning Tools

Cost segregation studies are a strategic tax planning tool that allows businesses and individuals who have purchased, constructed, expanded, or remodeled any kind of real estate to increase their cash flow by accelerating depreciation deductions and deferring federal and state income taxes.

In the United States, the cost of real property is typically depreciated over a long period (39 years for nonresidential property and 27.5 years for residential rental property). However, not all components of a building have the same useful life.

A cost segregation study identifies and separates the costs of various assets within a property into different asset classes, each having its own depreciation schedule. This process allows taxpayers to depreciate certain components of the building over a much shorter period, typically 5, 7 or 15 years, instead of the standard 27.5 or 39 years.

Here is a general breakdown of how cost segregation studies work:

Person using laptop showing house icon energy efficiency hinting at cost segregation studies benefits for rental property

Engagement of Experts: To conduct a cost segregation study, taxpayers typically engage tax professionals, engineers, or specialists who have expertise in tax law, construction methodologies, and the specific IRS guidelines for cost segregation.

Property Analysis: The experts will conduct a detailed analysis of the property, including a review of the architectural drawings, building plans, and cost data. They will also conduct a site visit to understand how various components are utilized.

Cost Allocation: The costs of various components, such as wiring, plumbing, HVAC systems, carpeting, and specialty fixtures, are identified and allocated into the appropriate asset classes based on IRS guidelines.

Report Generation: A detailed report is generated that includes the methodology, documentation, and the specific asset reclassifications and cost allocations. This report will serve as documentation in the case of an IRS audit.

Tax Filing: The taxpayer will then use the results of the cost segregation study to file tax returns with accelerated depreciation deductions, which results in lower taxable income and thus reduced tax liability.

Cost segregation studies can be particularly beneficial for property owners who have recently constructed or acquired property, or made significant improvements. It is also worth noting that while these studies can offer significant tax benefits, they may also be complex and require careful consideration of various factors. Consulting with a tax or financial professional with experience in cost segregation studies is advisable before undertaking such an effort.

What Are the Potential Tax Advantages?

Closeup on notebook showing tax advantages cost segregation studies leading to tax benefits reducing income taxes

Cost segregation studies may offer several benefits in terms of tax savings and cash flow enhancement for property owners. Some of these benefits include:

Accelerated Depreciation: By breaking down a property into components with shorter useful lives, cost segregation allows for accelerated depreciation. This means that a larger portion of the property’s cost can be deducted earlier, which decreases taxable income in the initial years of ownership.

Increased Cash Flow: The reduction in current tax liability through accelerated depreciation results in potential for increased cash flow. This additional cash can be reinvested in the business, used to pay down debt, or deployed for other purposes.

Catch-Up Depreciation: For properties that have been owned for several years, cost segregation can still be implemented retroactively without amending prior tax returns. This is known as "catch-up" depreciation, and it allows taxpayers to claim the depreciation that could have been claimed in prior years in one lump sum in the current year.

Tax Planning and Timing Flexibility: Cost segregation studies can be used as a strategic tax planning tool, enabling business owners to time their deductions in order to optimize tax benefits based on current and expected future tax rates, or to offset gains in high-income years.

Improved Asset Management: A detailed cost segregation study can help business owners better understand the composition of their property, which can lead to more informed decisions about asset maintenance, disposition, or replacement.

Support in Tax Audits: A properly conducted cost segregation study can provide solid documentation and support during an IRS audit. It gives clear evidence on how the property's components have been classified and valued, which can be crucial in case of scrutiny by the tax authorities.

Potential Property Tax Reduction: In some cases, cost segregation studies can also help in reducing property taxes. Certain jurisdictions might allow lower valuation for certain property components, and a cost segregation study could help in identifying and documenting these.

Benefit from Bonus Depreciation: The Tax Cuts and Jobs Act (TCJA) of 2017 allows businesses to take 100% bonus depreciation on certain kinds of property. A cost segregation study can identify qualifying assets, allowing property owners to take full advantage of this provision.

While cost segregation studies offer numerous potential benefits, it's also important to weigh these benefits against the costs and complexities involved in conducting the study. Additionally, it is advisable to consult with a tax professional like Perch Wealth, with expertise in cost segregation to fully understand the potential implications and advantages for your specific situation.

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.

Extending the Time Period of a 1031 Like-Kind Exchange

Extending the Time Period of a 1031 Like-Kind Exchange

A 1031 exchange serves as a valuable tool for investors aiming to defer capital gains taxes by selling an investment property and reinvesting the proceeds in another property. Due to the tax benefits it offers, the regulations surrounding 1031 exchanges are stringent. One notable aspect is the imposition of strict timelines by the IRS for completing these transactions.

To adhere to the guidelines, potential replacement properties must be identified within 45 days following the sale of the asset to be replaced, commonly known as the relinquished property. Furthermore, the acquisition of the replacement property must be finalized within 180 days of the sale, inclusive of the initial 45-day identification period.

Alongside these timelines, taxpayers are also required to fulfill additional stipulations set by the IRS to successfully complete a 1031 exchange.

Apart from the time constraints, there are additional requirements imposed by the IRS that taxpayers must meet for a successful completion of a 1031 exchange:

High stack of office documents symbolizing the requirements and paperwork for completing a 1031 like kind exchange emphasizing the tax benefits and regulations of such property investment strategies

Firstly, investors must refrain from accessing the proceeds generated from the sale of the relinquished property during the acquisition period. To ensure compliance with this "arms-length" status, it is necessary for investors to engage a Qualified Intermediary (QI) to facilitate the exchange. The QI assumes the following responsibilities:

  1. Holding the funds in a separate account that is not accessible to the investor.
  2. Receiving the formal identification of potential replacement properties as per IRS regulations.
  3. Overseeing the purchase of the identified replacement property.
  4. Maintaining comprehensive documentation of all transactions involved in the exchange process.

Another important requirement for a successful 1031 exchange is that the value of the replacement property must be equal to or greater than the value of the relinquished property. Additionally, the investor needs to identify potential replacement properties that fall into one of the following categories:

  1. The investor can identify up to three potential acquisitions without any limitation on the total value.
  2. The investor can identify more than three potential replacement properties, but the combined market value cannot exceed 200 percent of the original sale.
  3. The investor can identify any number of properties with any individual or combined value, but must subsequently acquire at least 95 percent of the identified value.

Lastly, in order to fully qualify for the 1031 exchange, the investor must not only replace the value of the relinquished property but also the debt associated with it. If the purchase price of the replacement property is lower than the sales price of the relinquished asset, the remaining amount, known as "boot," will be subject to taxation.

How to get an Extension for your Timeline

Gantt chart illustration for managing timeline extensions in a 1031 like kind exchange underscoring the strategic planning needed to maximize tax benefits in property investments

Obtaining an extension on the timeline for a 1031 exchange is generally not possible. The 180-day period allotted for completing the exchange is typically firm and cannot be extended. However, it is important to note that during the Covid-19 pandemic, the IRS did provide extended deadlines to accommodate the restrictions imposed by the crisis.

In certain circumstances, the IRS may grant an extension if the target property is located in an officially declared disaster zone. This extension allows taxpayers extra time to assess the suitability of the identified replacement property. The IRS follows the guidelines outlined in Revenue Procedure 2018-58 to determine eligibility for a disaster-related extension.

It is worth mentioning that a taxpayer may need to request an extension for filing their taxes if the exchange period overlaps with the regular tax filing deadline. For instance, if the exchange period concludes after the standard filing deadline, and the taxpayer has not successfully acquired the replacement property in time to meet the filing deadline, they can submit Form 4868 to request an extension for filing taxes.

Form 4868, also known as the Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, allows taxpayers to request an additional period of time, usually six months, to file their tax returns. This extension applies to the tax filing requirement and does not impact the 1031 exchange itself.

It is important to note that while requesting a tax filing extension may grant additional time for filing taxes, it does not extend the 180-day deadline for completing the 1031 exchange. Taxpayers must still abide by the original timeline for identifying and acquiring the replacement property to fully qualify for the tax benefits associated with a 1031 exchange.

In any case, it is advisable to consult with a tax professional or Qualified Intermediary to ensure compliance with all IRS regulations and to explore any available options for extensions or accommodations that may apply to your specific situation.

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: 

Using a 1031 Exchange for Constructing an Investment Property: Is it Possible?

Investors in the real estate industry can utilize 1031 exchanges to defer the payment of capital gains taxes when they sell an investment property and use the proceeds to reinvest in another property. It is important to note that if you choose to complete a sale and purchase outside of a 1031 exchange, you will be liable to pay capital gains taxes on the difference between the adjusted basis and the sale price of the property.

Suppose you purchased a piece of land for $250,000, which included the acquisition costs, and spent $100,000 on improvements, making your adjusted basis $350,000. After holding the property for five years, you decide to sell it for $600,000. This means that you will owe capital gains taxes on the difference between the sale price and the adjusted basis, which is $250,000. Depending on your tax bracket, you could owe up to $50,000 in taxes.

If you sell an investment property and choose to conduct a 1031 exchange, you can reinvest the proceeds from the sale into a new property while adhering to the procedures and timelines that the IRS created for the transaction. By doing so, you can reinvest the entire amount of the sale, which in the example provided was $600,000, rather than just $550,000. However, there are several essential requirements you must follow to qualify for this tax-deferred exchange:

●     Firstly, you must use a Qualified Intermediary to manage the process. The QI creates an account to hold and manage the proceeds between the initial sale and the final acquisition.

●     Secondly, you must identify potential replacement properties within 45 days of the sale and complete the purchases, or purchases, within 180 days from the start. This means that you have 45 days to provide a written list of potential replacement properties to the QI and 180 days to complete the purchase(s) of the replacement property(ies).

●     Lastly, it's important to note that the value and debt levels of the replacement property must match or exceed that of the relinquished property. In other words, the replacement property must have a purchase price equal to or greater than the relinquished asset, and you must also swap an equal or greater amount of debt.


Completing a 1031 exchange can be a complex transaction with strict timelines to adhere to, but the potential tax deferral can offer significant advantages. One of the benefits is the ability to use the exchange for subsequent investments, leading to a transfer when you pass away. At this point, the heir will inherit the property at its stepped-up value, eliminating any deferred taxes. This feature has the potential to create an excellent opportunity for investors to continue growing their investment portfolios while mitigating their tax liability.

Can I Build on the Property?

If you're considering building on a replacement property acquired through a 1031 exchange, there are specific guidelines you need to follow. If the replacement property's value equals that of the relinquished property, you can proceed with the exchange and make any desired improvements to the replacement property. However, if the replacement property's value is lower than that of the relinquished property, you'll need to make improvements to bring its value up to par.

The catch is that all the necessary improvements must be completed within the 180-day period allowed for the exchange. Additionally, you'll need to outline the planned improvements within the first 45 days after identifying the replacement property to be eligible for the exchange. It's essential to work with a qualified intermediary and seek professional advice to ensure you comply with all the rules and regulations of a 1031 exchange.

Can I Transact a 1031 Exchange into New Construction?

The 1031 exchange allows real estate investors to defer paying capital gains taxes by reinvesting proceeds from the sale of an investment property into a replacement property. However, one of the key requirements is that the value of the replacement property must be equal to or greater than the value of the relinquished asset. This requirement can make it challenging to use a 1031 exchange to build on a replacement property.

For instance, if an investor is selling a retail property and wishes to build a multifamily housing structure on vacant land, they must ensure that the value of the new asset is equal to or greater than the original property. If the new acquisition is of lower value until construction is completed, the investor must complete the construction by the end of the 180-day period. During this time, the title must be held by a qualified intermediary.

It is important to follow the rules and timelines of a 1031 exchange to avoid disqualification and to ensure a successful exchange. Investors should also work with a qualified intermediary to manage the transaction and help navigate any complexities. By doing so, they can leverage the potential benefits of a 1031 exchange and potentially defer paying capital gains taxes on their real estate investments.

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:

Are Capital Gains Tax & Inheritance Tax the Same Thing?

In the United States, individuals and businesses are subject to various forms of taxation, including taxes on wages, earnings, goods, services, and property ownership. Two specific types of taxes that American citizens may encounter are capital gains tax and inheritance tax. Both taxes can result in an increased tax bill for the individual, but they are not the same thing.

Capital gains tax is applied to the profit made from the sale of an asset, such as property, stocks, or bonds. The tax is calculated based on the difference between the acquisition price and the sale price of the asset. The tax rate can vary depending on the length of time the asset was held and the type of asset. For example, capital gains tax on long-term investments, such as stocks held for over a year, are typically taxed at a lower rate than gains on short-term investments.

On the other hand, inheritance tax is applied when an estate is passed on to beneficiaries upon the death of the person who owned it. The tax is applied to the value of the estate, including cash, investments, and property. Unlike capital gains tax, inheritance tax is imposed on the beneficiaries rather than the estate.

In addition, this tax is not uniform across the US, some states impose Inheritance tax and some don't. Inheritance tax is generally imposed on estates who are not related to the estate owner, such as friends or distant relatives.

What is an estate tax?

Inheritance tax, also known as an estate tax, is a transfer tax imposed on an individual's right to transfer property at death. It is important to note that this tax is not imposed on the federal level in the United States, but rather by some states.

The term "inheritance tax" is not used in federal taxation, instead the term used is "estate tax". The estate tax is imposed by the IRS, and defined as a tax on the right to transfer property at death. Spouses are generally not subject to estate tax due to the unlimited marital deduction.

However, there are exceptions and some states impose state inheritance tax. Additionally, 12 states and the District of Columbia also impose an additional estate tax on top of what the federal government charges.

For example, if you live in Iowa, Kentucky, Maryland, Nebraska, New Jersey, or Pennsylvania, your heirs might have to pay a state inheritance tax. The threshold for the estate tax is $12.06 million in 2022 and $12.92 in 2023. Any estate above these values will typically be subject to the estate tax.


What are capital gains taxes?

Capital gains tax is a type of tax that is imposed on the profit that is earned from the sale of a capital asset. Capital assets can include a wide range of items such as real estate, stocks, bonds, and other investments, as well as personal property that is used for investment purposes.

The profit from the sale of these assets is subject to capital gains tax. It is important to note that capital gains tax is different from estate or inheritance taxes, which are taxes imposed on the transfer of assets from one person to another upon death.

The amount of tax owed on capital gains is determined by several factors, including the individual's income tax bracket. The federal government has several different tax rates for capital gains, which vary depending on the type of asset sold and the length of time it was held.

Generally speaking, the tax rate for long-term capital gains (assets held for more than one year) is lower than the rate for short-term capital gains (assets held for less than one year). For example, the current average federal capital gains tax rate is 15%, however, it can be higher or lower based on your income level.

Additionally, some states also impose their own capital gains tax rates in addition to the federal taxes owed. These state capital gains tax rates can vary widely, so it is important to understand the laws in your state before selling a capital asset. Overall, Capital Gains Tax are taxes imposed on the profit that is earned from the sale of a capital asset, can vary depending on your income level, and some states may have their own rate as well.

Capital gains taxes and inheritance taxes may seem similar at first glance, but they are in fact very different types of taxes. Capital gains taxes are imposed on the profit earned from the sale of a capital asset, while inheritance taxes are imposed on the transfer of assets from one person to another upon death.

In Conclusion

It is important to understand the difference between the two, as well as the federal and state regulations surrounding both, as it can affect the amount of tax you owe. The laws and regulations regarding capital gains and inheritance taxes can vary from state to state, so it's essential to seek the advice of a tax professional who is knowledgeable about both federal and state policies and guidelines.

In summary, Capital gains taxes and inheritance taxes are different taxes, with different regulations and laws. To fully understand what you may owe, it's important to work with a tax professional well-versed in both federal and state policies and guidelines.

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 Self-Storage?

Residential property investing is the most simple and understandable for many investors making their initial forays into the real estate market. After all, the majority of people have rented out or bought a home at some point in their lives. They are aware of how residential structures work.

However, a residential-only mindset could let an investor miss out on other, more lucrative prospects. Self-storage is one of those chances; it's a booming asset class with an estimated $48 billion in market value and rising.

In this post, we give an introduction to the self-storage market and go over key advantages and disadvantages that investors should think about when evaluating a self-storage potential. Learn more by reading on.

What Is Self-Storage?

Simply described, a self-storage facility is an area that can be rented out to outside parties to use as secure, convenient storage for their goods. This space is typically divided into many units.

There is a great need for self-storage. Self-storage is used by people for a wide range of reasons, such as to complement their current storage, to store belongings during home renovations, for archiving and decluttering needs, during different life transitions, and when they are moving.

Self-storage is often divided into the following three "classes":

Class A self-storage: These facilities are the most expensive, offer the most up-to-date amenities (such as climate control), are professionally maintained, and have recently been built (within 10 to 15 years). They also often have low vacancy rates. Class A self-storage is conveniently located and frequently paired with similar businesses like UPS or U-Haul rentals.
Class B self-storage: These facilities are older (often over 15 years old), well-maintained, but may not have 24/7 on-site management. They also offer fewer amenities and, in general, charge low- and middle-income renters average rates. These homes will typically be close to major thoroughfares, though not always in desirable areas.
Class C storage facilities: these tend to be older, in less convenient locations (typically off the beaten path), with few or no amenities, and with insufficient security. In order to provide investors with a reasonable return, these properties frequently have the lowest rent and may need considerable property upgrades.
There isn't a "best" or "worst" self-storage class. Depending on an investor's risk tolerance and planned business plan, any one could be a profitable investment. Over time, a value-add focused self-storage sponsor can frequently bring Class B/C properties up to par with Class A facilities.

The Self-Storage Industry's History

Over the past 50 years, the self-storage market has undergone significant transformation, notably in terms of the layout and quality of services offered by these facilities. Self-storage facilities were once plain, lengthy warehouses with sporadically located garage doors leading to partitioned areas where people would store their goods. There may or may not be a fence around the property, but security at these places was often not very strong.

Self-storage structures were frequently designated for oddly shaped parcels of land or other abandoned pieces of property that people struggled to develop for other purposes. They served as the last-ditch development when no other plans could be made to make money.

Rewind to the present day. The self-storage sector is not just a side gig. It's a desirable asset class right now. Self-storage facilities are no longer hidden on remote properties. Self-storage facilities are now found in well-known cities, next to popular establishments like supermarkets and big-box retailers.

The value of self-storage facilities has also increased as a result of their modernization. Self-storage facilities of today are frequently multi-story structures with variously sized climate-controlled units. They have strong security measures, such as automatic gates. Many are combined with related services, including U-Haul trucking facilities, to give people looking to relocate and subsequently store their belongings a one-stop shop.


The Benefits and Drawbacks of Self-Storage Real Estate Investing

Investor interest in self-storage is beginning to grow at an unprecedented rate because to historically low interest rates and the asset's solid fundamentals. Self-storage is undoubtedly not a risk-free financial decision. Just like with other asset type, there is risk. Before making a decision, potential investors should be aware of the advantages and disadvantages of the self-storage real estate sector.

The following are some of the most important benefits and drawbacks to think about:

An asset with low maintenance.

Modern technology has made it possible for owners to manage self-storage facilities with comparatively little oversight (for example, lighting and security systems). Furthermore, relatively little maintenance is necessary because each unit is essentially just a core and shell. The majority of these properties have limited landscaping and few, if any, common areas that need to be maintained. Self-storage is one of the simplest and least expensive types of real estate property to maintain over time.

An asset class with potential for stability and cash flow.

Self-storage facilities have the ability to generate reliable, regular monthly cash flow. Due to the short-term nature of the leases, it is simple for an owner to evict a tenant for failure to pay rent, and once done so, the unit can be swiftly released, which is especially true if a facility has a wait list. Since the majority of tenants are not bound by lengthy, fixed-rate leases, owners can slightly raise rents when demand rises—even by $2 to $5 per month. Cash flow can also be increased through administrative costs, late fees, and retail sales.

Potential for income stream diversification.

While the base fee for individual units will always be a self-storage operator's main source of income, those with conveniently positioned facilities can make use of their building or property to expand the range of goods and services they provide. For instance, self-storage companies with large amounts of land may provide covered but chilly outdoor storage on the extra area, which can be utilized for items that someone would typically keep in a garage or shed. Operators may also collaborate with a business like U-Haul to offer rental vehicles or vans. To diversify their sources of income and try to boost overall cash flow, owners may additionally run a gas station, janitorial service, or other industrial service at their self-storage facility.

Pro: Historically resistant to recession.

When the economy is doing well, more people move, spend money on home improvements, and shop more, all of which boost demand for self-storage. People downsize, move in with roommates, and occasionally are kicked out of their residences during economic downturns. The demand for self-storage also often rises in each of these circumstances. Self-storage has always been an asset type that is recession resistant due to its diverse demand drivers.

Financing that is inexpensive.

Due to the fact that many real estate owners also run their own self-storage facilities, financing for the purchase and any required modifications can be highly alluring. Numerous banks offer low loan-to-value, non-recourse loans. Another appealing option for owner-operators is SBA financing. A significant portion of these loans' interest-only periods help to keep costs down while the facility's owner works to stabilize it.

Short-term leases are an issue.

Self-storage leases often go from month to month. Due to the potential for significant turnover, an operator must continually market the property to enable timely release of units in the event of turnover.

Cons: There is a chance of an oversupply.

Self-storage facilities can be developed quickly and readily during periods of very strong demand because they are generally inexpensive to construct and operate. However, whenever demand declines, there may be an oversupply that drives down rentals across the board. Any potential investor should take into account both the current and anticipated (i.e., permitted) competition in close proximity to the facility they are considering to purchase.

Con: Hyper-local conditions drive demand.

Self-storage investors frequently choose a facility based on "planned" new dwelling construction, which is a typical error. For instance, a self-storage developer might enter a neighborhood carrying a sign that reads, "1,000 new housing units, coming soon!" There is no assurance that those housing units will ever be built, though. Even if pre-permitted, new development of those units could be halted by any changes in the economy. Similar to this, an operator might exaggerate demand from a nearby employer (such as a naval installation), but if that employer closes, self-storage demand might vanish over night. To protect their investment, potential investors will want to ensure that there is adequate existing demand and that this demand is varied.

Negative: Not completely hands-off.

Many individuals mistakenly believe that self-storage facilities are self-sufficient. Although there are many ways to cut operational expenses, these properties still require active management to be successful. Continuous upkeep and repairs are required to keep the building in good operational condition. Before investing in a self-storage facility, every investor will want to have a sound business strategy in place.

Does self-storage fit your needs?

Consider investing in the self-storage sector for a variety of reasons, some of which we have listed above. Self-storage is still a very dispersed asset type. Mom-and-pop business owners who are about to retire still own a lot of facilities. This presents an opportunity for anyone trying to break into the market, particularly for those who approach future operations and facility maintenance with a more professional perspective.

Self-storage is not without risk, though. This asset class has a number of subtleties that are frequently only discovered through actual experience. Anyone thinking about investing in self-storage might want to test the waters by doing so with a seasoned sponsor who can maximize returns for investors, such a Delaware Statutory Trust (DST).

Are you prepared to discover more about the possibilities for investing in self-storage? To find out how to begin, get in touch with us right away.

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:

Is Retail Real Estate Still a Good Investment?

One of the biggest and most varied product categories in commercial real estate is retail real estate. According to Forbes, it holds roughly 25% of the market share. The retail market in it consists of establishments like clothes stores, pharmacies, supermarkets, and eateries, among others. Retail businesses are utilized only for the marketing and sales of consumer goods and services.

What Covid-19 Means for Retail

The number of retail bankruptcies increased to its greatest level in more than ten years as a result of COVID-19. The retail industry has been struck more severely in some segments than others. The two types of buildings most impacted by the pandemic are strip malls and shopping centers. The increased popularity of internet shopping had already an impact on these areas. For many of these malls and plazas, the pandemic signaled the end of the road. Forbes reports that the third quarter of 2020 saw a 10.1% increase in mall vacancy rates, the greatest level in 20 years.

Many retail locations that couldn't survive the epidemic will be put to new uses. For some, the growing need for medical office space will present an option. Others might be used in the educational sector or transformed into hubs for distribution, etc. Even if some researchers forecast a 20% decline in offline retail by 2025, there are still numerous areas of the market that are currently poised to experience massive growth.

Retail establishments like Target, Home Depot, and Walmart largely escaped 2020 unharmed. Walmart revealed this year that it planned to spend over $500 million modernizing some of its locations, according to Mordor Intelligence. Their wide range of goods keeps consumer demand strong.

Restaurants that survived the pandemic before vaccination are already reopening.

According to a Marcus & Millichap article, supermarket sales were surpassed by restaurant and bar expenditure for the first time ever in April of 2015. Dining out sales have once again outpaced supermarket sales as a result of stimulus funding, demand, and reopening. Additionally, delivery firms like Door Dash and Postmates have influenced this.

Modern Shopping Methods

Even before COVID-19, e-commerce (online shopping) had established itself as a common method of purchasing items. E-commerce is fueled by consumer purchasing patterns, which pushes vendors to build online marketplaces for customers. The adoption of smart phones and other mobile devices makes it simple for customers to make online purchases of their items.

Despite the rise in popularity of online shopping, a Deloitte retail article notes that "(m)any buyers desire to mix and match their channel journey based on convenience demands." Retailers who are successful will use an omnichannel strategy that combines offline and internet channels. E-commerce sales only made up 16.1% of all US market sales in the second quarter of 2020, during the height of the COVID-19 epidemic, according to a Mordor Intelligence analysis.

Of course, a lot of consumers still favor brick and mortar stores. A better future for many in the retail industry may be on the horizon as more stores open and more people receive the vaccine.


Considering the Future

Retail property valuations for both single-tenant and multi-tenant situations have held up better than expected. Owners are now getting more than 91 percent of rent, surpassing 90 percent for the first time since March 2020, according to Marcus & Millichap. In the fourth quarter of 2020, deal volume reached $18 billion. In 2021, revenues were already close to $30 billion before the year's midway point.

Since February 2020, core retail sales have climbed by 16.8%. This increase can initially be attributed to government stimulus payments and unemployment insurance benefits. The decline in transportation and entertainment options was money in the bank for those who kept their jobs. This made it possible for retail sectors to see greater spending.

Retail sales should return to normal as professional sports stadiums, concert halls, movie theaters, and other entertainment locations continue to fill up. According to a Marcus & Millichap study, Americans now have $4 trillion more in readily available capital than they did before the pandemic. The story continues by stating that in June, consumer confidence rose to a 16-month high. Less COVID-19 deaths as a result of vaccination distribution are the cause of this.

Recent surveys have revealed a significant increase in employment. The general people is encouraged to find new employment because unemployment benefits are set to expire in September. The U.S. Bureau of Labor Statistics found that 9.3 million people were looking for work in a poll it conducted in May. There were 9.2 million available positions at the same time. Strong employment growth in June is a sign that the labor economy is picking up steam.

Benefits of Small Business Investments

Retail investments may provide special benefits that other product categories might not. They have the potential to generate monthly dividends, which can be quite alluring to investors who prefer an income-stream investment over one that will increase in value through capital gains. Turnover rents are another benefit of retail investments. As a result, investors are given a share of the gross revenue generated by the company they lease. The fact that a retail lease normally has a minimum term of 5 years adds another possible benefit to the arrangement. Tenants can use this time to develop their businesses and make money.

Final Remark

In the current market, a wise retail investment might be advantageous for the buyer. It is crucial to consult knowledgeable experts who can assist you choose the investments that may perform well in the upcoming years.

Are you curious to discover more about your real estate investment options? Call us right away.

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:

The Asset Class of Senior Housing

Despite the fact that the birth rate in the United States has fallen to its lowest level in more than a century, there are still many seniors in need of high-quality housing that meets their unique requirements. Just behind the millennial generation in terms of size, the baby boomer generation is the second-largest. Our civilization is aging as a whole, necessitating more senior housing in the years to come. Over the decade beginning in 2020, the number of persons who will be 75 years old will increase astonishingly by 48.1%, more than double the growth rate from the previous ten years (Source: U.S. Census Bureau projections). The best moment to invest in the asset class of senior housing may be right now.

Senior housing is an enterprise.

Every single day, around 10,000 baby boomers reach the traditional retirement age of 65 (Source: Sen. Rob Portman (R-Ohio), in The Wall Street Journal, July 22, 2014). The next golden years are short-lived. Senior living is a given for many as they approach or attain octogenarian status, despite the fact that some baby boomers are choosing to stay in the comfort of their homes due to the rising cost of home care.

The unpleasant loss of autonomy that comes with aging is also a possible investment opportunity for astute investors. But no two senior housing complexes are alike in terms of their size, style, or value proposition. This unique company's degree of attention and concern is what makes it special. Operators who have the right policies, procedures, and systems in place draw customers as well as devoted personnel. The finest senior living facilities have strong personnel retention rates, which draw more residents and boost revenue.

The average number of units in senior home complexes exceeded 100 as of the beginning of 2021. (106 to be exact). A $34,725,000 average development cost translates to a $269,400 average cost per unit. (Source: CBRE's December 2018 U.S. Seniors Housing Development Costs Report) If you do the math, you'll find that the average cost per square foot in this industry is an amazing $317. As more baby boomers move into senior homes, this number will probably rise much further.

The Advantages of Senior Housing as a Class of Assets

Although it makes sense that the typical investor would be focused on finding the next hot growth stock, senior housing actually has the potential to outperform other asset classes in both the short and long term. According to the research, senior housing has done pretty well as an asset class even throughout economic downturns. As they get older, people frequently look for a social setting with readily available care.

Since more people are living longer than ever, they will stay in senior home for longer than in the past, driving up costs for every level of care. The several degrees of senior living are as follows:

Age 55+
Senior living
dementia care
competent nursing
The words "Senior living" or "senior housing" frequently conjure images of expert nursing in the minds of many people. However, it's critical to thoroughly comprehend the differences because each level of care demands unique operational capabilities and shouldn't be grouped together when determining the return on an investment in senior housing.

There are no two identical senior housing communities.

In terms of care quality and investment appeal, senior home facilities within a single market may range greatly from one another. In other words, each form of senior living facility has unique characteristics and subtleties that should be thoroughly considered and grasped.

Although occupancy rates for senior living vary across the sector, rents are comparatively stable and could rise as the housing crisis plays out in the coming years. In contrast to other types of real estate, senior housing assets have historically offered consistent rates of return.

Invest in Senior Housing with Advice from a Sector Professional

There will likely be more than a 22% increase in the number of Americans over 75 between now and 2025, according to projections. By 2025, more than a million people will have reached that age. As the decade ahead takes shape, it is evident that senior housing will not only be in demand but also perhaps be quite challenging to find (Source: U.S. Census Bureau projections).

The time is now to think about making an investment in this expanding asset class. Get in touch with Perch Wealth right away and invest under the direction of a senior housing industry expert who has in-depth knowledge of this sector, including the advantages and disadvantages of particular operators, to acquire a complete grasp of the potential risks and benefits. Seize the chance to diversify your investment portfolio and benefit from the growing senior housing market.


Dale Watchowski, Is Now a Good Time to Invest in Senior Living? (February 9, 2021),

Ecofin, Senior Living - Investing in a growing population (April 9, 2021),

Blake Peeper and Vanessa Gil, Pensions & Investments, Commentary: Senior housing in the post-COVID-19 world (November 17, 2020)

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:

A QI's Contribution to a 1031 Exchange

For all 1031 trades, a qualified intermediary (QI) is necessary. Real estate investors must choose a QI they can rely on and trust given the significance of the QI in an exchange. However, doing so can be challenging because how can an investor tell whether a specific QI is credible? This quick guide will show you how to choose a trustworthy QI for a 1031 exchange.

A QI is what?

An individual or organization that facilitates a 1031, or like-kind, exchange in accordance with Internal Revenue Code (IRC) Section 1031 is referred to as a QI, sometimes known as an accommodator. According to the Federal Code, a QI's responsibilities are as follows:

A qualified intermediary is a person who: (A) Is not the taxpayer or a disqualified person; and (B) Enters into a written agreement with the taxpayer (the "exchange agreement") and, in accordance with the exchange agreement, obtains the property being exchanged from the taxpayer, transfers the property being exchanged, acquires the replacement property, and transfers the replacement property to the taxpayer. (26 CFR § 1.1031(k)-1)

A person can become a QI without having to fulfill any eligibility requirements or obtain a license or certificate. The Internal Revenue Service (IRS) does, however, specify that anyone who is related to the exchanger or who has had a financial relationship with the exchanger - such as an employee, an attorney, an accountant, an investment banker or broker, or a real estate agent or broker - within the two years prior to the sale of the relinquished property is disqualified from serving as the exchanger's QI.


Why is a QI crucial to a 1031 Exchange?

Every 1031 exchanger is required to choose a QI and sign a formal agreement before closing on the property being given up. After being chosen, the QI's three main duties are to create the exchange documentation, swap the properties, and keep and disburse the exchange monies.

The Creation of Exchange Documents

The QI creates and maintains all pertinent paperwork throughout the exchange, including escrow instructions for all parties involved.

Trade of Properties

In a 1031 exchange, the QI is required to buy the exchanger's property that is being given up, give it to the buyer, buy the seller's property that is being replaced, and give it to the exchanger. Despite the fact that the QI also transfers the title, the QI is not technically required to be a link in the chain.

Exchange funds holding and releasingFor an exchanger to defer capital gains, all proceeds from the sale of the relinquished property must be held with the QI; any proceeds held by the exchanger are taxable. As a result, the QI must handle the sale funds of the property that was given up and put them in a different account where they will be kept until the replacement property is bought.

For the exchange to be valid, the exchangers must adhere to two crucial timeframes. At the conclusion of the identification phase, the first occurs. The exchanger is required to choose the new property to buy within 45 days after the transfer of the property being given up. At the conclusion of the exchange period, the second occurs. Within 180 calendar days of the transfer of the relinquished property, the exchanger must receive the replacement property. Even if the 45th or 180th day falls on a Saturday, Sunday, or legal holiday, these severe deadlines cannot be extended.

What factors should investors think about while selecting a QI?

Since a QI is not needed to hold a license, investors should do their research to make sure they choose someone who can manage the 1031 exchange effectively. Investors may be compelled to pay taxes on the exchange as a result of errors made by a QI because the IRS regrettably does not pardon any mistakes made by a QI. Here are some factors that investors should take into account while choosing a QI.

Statutes of the State

Although QIs are not governed by federal law, certain states have passed legislation that does. For instance, rules governing the sector have been passed in California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia, and Washington. These states frequently have license and registration requirements as well as requirements for separate escrow accounts, fidelity or surety bond amounts, and error-and-omission insurance policy amounts.

Federated Exchange Facilitators

A national trade organization called the Federation of Exchange Accommodators (FEA) represents experts who carry out like-kind exchanges in accordance with IRC Section 1031. Support, preservation, and advancement of 1031 exchanges and the QI sector are the goals of the FEA. Members of the association must follow by the FEA's Code of Ethics and Conduct.

Additionally, the FEA has a program that awards the title of Certified Exchange Specialist® (CES) to those who meet certain requirements for work experience and who successfully complete an exam on 1031 exchange rules and processes. This certificate's holders are required to pass the CES exam and complete ongoing education requirements. To taxpayers thinking about a 1031 exchange, the designation "demonstrates that the professional they have selected possesses a certain level of experience and competence."


Information and expertise

As previously stated, a QI error in a 1031 exchange could lead to a taxable transaction. Before making a selection, investors who are choosing an accommodator should carefully consider each person's credentials, including their knowledge and experience in the sector. Investors should find out if the person is employed full-time or part-time, and how many transactions and how much value the person has enabled. Furthermore, it's critical to understand whether the person has ever had a failed transaction and, if so, why.

Understanding 1031 exchanges is essential. Potential QIs should be familiar with the fundamentals as well as the specifics of the 1031 exchange procedure. For instance, QIs should be aware of what constitutes a like-kind attribute. They should also be aware of Delaware Statutory Trusts (DSTs), one of the most frequently disregarded alternatives to 1031 exchanges. Sadly, a lot of QIs are unfamiliar with DSTs. Investors who wish to successfully delay capital gains while still achieving their overall financial goals must find a qualified and professional QI.

How exactly should an investor choose a QI?

Investors should ask for recommendations to identify a QI in good standing. Finding a trustworthy QI might be a lot easier by word of mouth. Investors can request a recommendation from a real estate lawyer, a trustworthy title business, a certified public accountant (CPA) with experience in 1031 exchanges, or even the other party to the exchange.

Investors must probe potential QIs with inquiries that go beyond the bare minimum to learn more about their breadth of expertise and experience. For instance, the FAE mandates that prospective QIs work full-time for a minimum of three years before being allowed to take the CES exam. When evaluating a QI's experience, three years is a decent place to start; five to ten years is a good number.

One of the most important steps in a 1031 exchange is locating a qualified intermediary (QI), as the exchange cannot take place without one. Investors must confirm that their QI is knowledgeable about the numerous tax rules involved and has extensive experience. Additionally, investors must confirm that the QI is not a relative, an employee, or an agency and has had no recent financial ties to them. The IRS does not take these issues lightly; if the requirements outlined below are not met, there may be severe penalties assessed, or the IRS may even forbid the transaction from taking place at all.

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.


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

Group of business people discussing and working together during a meeting at outdoor cafe

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