Roundtable: Rolling Returns from One Real Estate Deal to the Next
As the East End is a popular real estate market for savvy investors, it’s certainly not unheard of for both seasonal and year-round homeowners to cash in on their pricy Long Island real estate to upgrade or relocate. Additionally, 1031 Exchanges — a tax break to avoid capital gains — happen quite frequently. We were curious how real estate professionals in the Hamptons and the North Fork help their clients accomplish their financial goals when reinvesting their money either here or elsewhere. What is their best advice when entering the process?
“As the East End market continues to shift at such a rapid pace, longtime residents with a second home, land or, quite literally, the family farm, have seen major appreciation in a few short decades. With big appreciation of real estate values, comes a big capital gains tax burden when the owner goes to sell — think 35% big! My best advice for sellers is to speak with a financial advisor I personally trust with my family properties who specializes in 1031 exchange on the East End. Last year we worked with three buyers on the North Fork who utilized the tax benefit of a 1031 exchange from the sale of their commercial property in the city to purchase investment properties on the North Fork. One client was even able to use the proceeds from 1031 exchange to renovate their investment home — now that’s smart!”
“A couple of years ago, in the early part of the COVID frenzy, an investor was looking for waterfront property to park some money as a hedge against the inflation he saw as inevitable. As the search began, he changed his strategy upon learning that the more valuable Hamptons properties are not only more secure investments, but typically appreciate faster. And after we studied the flood maps, he decided to buy on the ocean instead of the bay, figuring that sea level rise would be more destructive on the bay side. So while he had his goals clearly laid out, I was able to guide him toward the right property to fit those objectives. That’s typically how it goes: the clients know what they need to do financially, we as agents help them find the right properties to accomplish their goals.”
THE CORCORAN GROUP
“Who doesn’t like tax savings? A 1031 exchange is valuable as it allows investors to defer the payment of capital gains taxes on the sale of real estate if they reinvest in a similar new property. Most of my clients in the development space are rolling returns from one project to the next and we need to be timely in identifying new acquisitions. Per the rules of a 1031 exchange, we only have 45 days to identify — and 180 days to close on the purchase of — the new asset. Other clients in the commercial space are looking to acquire well-performing assets and we’ll identify investment properties with strong rental histories. And if no current great opportunities exist for the rollover, a 1031 Delaware Statutory Trust (DST) can prove beneficial. With a DST, investors are able to purchase just a fractional interest in a commercial site (ex. office building, shopping center) that will still qualify as a replacement property – thus avoiding the tax burden.”
BROWN HARRIS STEVENS
“Firstly, surround yourself with a trusted and expeditious A-team of professionals who are aligned with your goal and timing. This includes a real estate sales agent or team, a 1031 exchange agent, an attorney and financial partner(s). Many buyers are looking for similar investment opportunities, so the ability to move efficiently and with speed is important. Secondly, it is important to work with a real estate agent or team who understands commercial and residential return on investment (ROI) and can advise across multiple price points. They can share and explain detailed sales and listing comps, local building codes, as well as an analysis of emerging and current trends along with sales data relevant to your investment goal. Furthermore, your agent can give recommendations from a network of architects, engineers, contractors, builders, landscapers, and interior designers, which can further inform the total budget and investment view. Lastly, enjoy the exhilaration of a new project which builds upon your real estate portfolio.”