Every week, we ask a real estate professional for their Short List, a collection of tips and recommendations on an essential topic in real estate. This week, we talked with Jason S. Vanden Bosch, the a managing director in the Chicago office of CBIZ MHM, LLC, about the three issues real estate investors face – and how agents can assist them.
With the rebound of the economy, more and more individuals are looking to become real estate investors, whether to hold property for rental purposes, to develop new property, or to acquire, rehab, and sell existing property. Many of our clients who previously have not been involved in the real estate market are now looking to supplement their investment holdings by acquiring property. These individuals will need to pair up with agents who not only can find the best properties, but who also understand the unique needs of a real estate investor.
Investing in real estate is a complex market, which is why successful investors know to engage a team of seasoned, experienced professionals. Proactive and creative agents, accountants, and attorneys can add significant value to any real estate project. These professionals’ years of planning and consulting with other real estate clients can translate into creative ideas that may yield significantly higher profits.
By understanding some of the needs of the typical real estate investor, agents can differentiate themselves from their competitors, deliver better advice, close deals quicker, and ensure repeat business with future real estate acquisitions. Here are three issues that residential real estate investors are currently facing:
3. Planning for Acquisitions of Assets – When a property is acquired, there can be significant tax benefits by way of depreciation deductions. Improved residential real estate, which often includes furniture and appliances, can result in maximized depreciation deductions. On the contrary, properties such as vacant land or buildings that may be torn down will generally result in the least amount of benefit. It is important for agents to understand the tax benefits of depreciating fully improved residential real estate, as these benefits can reduce the net cost of acquisition for a real estate investor.
2. Planning for Incentives – Many state, county, or city incentives are available for investments in real estate. These incentives may take the form of decreased real estate taxes, sharing of development costs, or tax rebates for long-term growth in a particular geographic area. For example, Tax-Increment Financing (TIF) districts have been created by many municipalities to spur development.
Obtaining TIF funds is not an easy process, and experienced professionals that can help navigate the political aspects of negotiating with the local government, while helping avoid severe negative tax consequences of receiving such income, are absolutely necessary with these types of incentives. A real estate agent marketing larger properties may want to inquire with their client if all potential incentives have been investigated.
1. Planning for Reinvestment of Proceeds – Many real estate investors are now being faced with the very good problem of selling their properties at substantial gains. Astute investors will often be trying to take advantage of the tax-free exchange, whereby they can roll their sales proceeds into new property and avoid current taxation of those gains.
Although this is a common technique employed in the real estate community, it is very complex and the timing is sometimes challenging—new property has to be identified within 45 days of sale and acquired within 180 days of sale. A real estate investor looking to acquire property to effectuate a tax-free exchange will need an agent who can move quickly, identify multiple properties that may be suitable, and understand the unique nuances of tax-free exchanges.
The above issues can be complex and require guidance from a team of experienced professionals. However, by becoming more educated about some of the tax and structuring issues that real estate investors are facing, agents can be better prepared to service their clients. The best agents are distinguishing themselves from their competition by understanding the client’s needs in these areas, and therefore finding repeat business from their clients as real estate investors tend to be loyal to the professionals that provide them with great advice.
Jason S. Vanden Bosch, CPA, is a managing director in the Chicago office of CBIZ MHM, LLC. With 18 years of public accounting experience, Jason provides a variety of attest, tax and consulting services to his real estate and construction clients. Jason is also an instructor for various in-house seminars on real estate and construction. Jason earned a BA in accounting and business administration, with high honors, from Northwestern College, Orange City, IA. He is a board member of the Construction Financial Management Association and is a frequent contributor to articles found in the Illinois CPA Society Insights magazine and Crain’s Chicago Business. He has also been a guest speaker at the Illinois CPA Society’s Construction Conference, the Illinois CPA Society’s Taxation on Real Estate Conference, and the Illinois Real Estate Journal’s Distressed Real Estate Conference.