Are you a financial planner whose clients have money in real estate?

Here are 3 ways to leverage those assets to bridge the retirement gap.

When clients have a significant portion of their net worth tied up in investment properties, it can be frustrating to feel that such a large piece of the planning puzzle is outside your control. It’s easy for both advisor and client to become complacent with these assets. This creates a major blind spot for important issues like taxes as well as missed opportunities for maximizing retirement income and plan success. But it doesn’t have to be this way. Below are three ways you can leverage client real estate assets to help them retire sooner with more income and less taxes.

1. Substantially Increase Income
Did you know most investment properties located in expensive markets (e.g., San Francisco Bay Area, New York, Los Angeles, etc.) are underperforming from an income standpoint? By exchanging properties in these markets for properties in less expensive parts of the country, investors can typically increase their total rental income by 35%, 50%, or even 100%!!!

This type of rental property arbitrage can be an effective way to give your clients the extra income they need to reach their savings goals, pay down debts, and retire sooner and more comfortably than they otherwise would.

2. Defer (And Potentially Avoid) The Capital Gains Tax
One of the biggest perceived obstacles to working with a client’s real estate investments is taxes, especially for those who have inherited property with a low cost basis. The potential tax bill generated by selling a highly appreciated property is often the reason investors settle for below-average returns.

By utilizing the 1031 exchange rule, however, investors can exchange an investment property for one or more “like-kind” investment properties while deferring any capital gains. Done properly, a 1031 exchange allows investors to transition into higher-returning properties without triggering tax consequences.

There’s no limit to how long investors can defer capital gains on a 1031 property, so thanks to the step-up rule, investors can avoid ever paying capital gains tax on property held until their death.

3. Create Liquidity For Paying Down Debt
Another benefit of a 1031 exchange is the ability to tap the equity of an investment property with minimal tax consequences. This equity can be an important source of liquidity for paying down debt that can help your client create a beeline to their retirement.

Investors are allowed to take a portion of the proceeds from a 1031 sale to pay down debts before reinvesting the remaining amount into a like-kind property. While they will owe taxes on this amount taken, it will be much less than they would pay on the sale of the property’s full market value.

Case In-Point
A single mom in her mid 50’s inherited her childhood home in Menlo Park – at the time producing $5,300 a month in rental income. SIFF identified and helped to purchase a 5-unit property in Portland, OR for $850K. Rental income from this property was $9,400; resulting in a monthly increase of $4,100!!

Even with this 77% increase in monthly income, she was able to pull $600k in cash from the exchange to pay down debt and establish some emergency savings, all while successfully deferring more than $450k in capital gains tax.

About SIFF
If you feel like advising on client real estate investments is beyond your area of expertise, you’re not alone. Many advisors have good intentions but don’t have the tools or experience needed to analyze and identify the best opportunities for their clients. SIFF is a real estate investment advisory and consulting firm (NOT a real estate broker) that works with investors and their advisors to bridge the gap between financial planning and real estate investing.

Unlike real estate brokers and agents whose main goal is transactional in nature, SIFF brings objective, third-party guidance to those looking to leverage their real estate investments to create a shorter path to retirement. To ensure the best possible pricing and service, SIFF also coordinates and oversees all of its clients’ real estate transactions.

Call Us Today: 1 (415) 601-1051 |

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