1031 Exchange Blog

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What is an Accredited Investor?

02/07/23

Some investment opportunities require you to be an Accredited Investor. What is an Accredited Investor, you ask. Learn more about ...

Authored by: marketing

Authored on: Tue, 02/07/2023 - 19:29

Miscellaneous

The Securities and Exchange Commission (SEC) was created after the 1929 financial crisis brought chaos to US investors. The commission’s primary goal is to protect unsophisticated investors from participating in investment opportunities that they might not understand or from taking on too much risk without adequate information. Accordingly, it created a category of investor referred to as accredited, which means the individual (or entity) is eligible to invest in a broader range of investment options than others. In order to be considered accredited, an investor must meet at least one of the following qualifications:

<ol>
<li>Have an annual income of over $200,000 ($300,000 with a partner) for at least two previous years and an expectation of the same for the current year.</li>
<li>Have a personal or joint net worth of over $1 million, excluding the value of the primary residence. For entities, the minimum net worth is $5 million.</li>
<li>Be an investment professional holding an appropriate license such as Series 7, Series 65, or Series 62.</li>
</ol>

Investors who qualify by these criteria can be accredited for most restricted offerings. However, it’s important to note that the company or entity offering the investment decides which investors qualify. While these are among the common means of being accredited, the <a href="https://www.sec.gov/education/capitalraising/building-blocks/accredited…; title="SEC website">SEC</a> offers a comprehensive list.

In addition, non-accredited investors may be able to participate in offerings for which they would not otherwise be eligible if they are affiliated with the company selling the relevant security. Banks and other institutions can also participate in restricted investment options.

<h2>How does the SEC protect non-accredited investors?</h2>

<a href="https://www.realized1031.com/glossary/non-accredited-investor" title="Realized Non Accredited Investor">Non-accredited investors</a> are restricted from investing in specific offerings that may include hedge funds and private equities. An investment restricted to accredited investors can bypass registration with the SEC, allowing it to forgo presenting some disclosures to potential investors. These investments are often called private placements or Reg D offerings. The issuing company is only obligated to provide basic company information, in contrast to the detailed information required for securities registered with the SEC.

The working theory is that investors with fewer assets, lower income, or different professional experience may be misled by potential opportunities that don't have to comply with disclosure and information requirements and shouldn’t be allowed to risk significant amounts of capital on risky opportunities.

<h2>Why do Delaware Statutory Trust (DST) investments require accreditation?</h2>

<a href="https://www.realized1031.com/glossary/delaware-statutory-trust-dst" title="Realized DST Explanation">DSTs</a> can be attractive investments, offering the opportunity to purchase a fractional interest in a wide range of real estate assets. Sponsors create DSTs by pooling the assets of participating beneficiaries (investors in DSTs are referred to as beneficiaries) to invest in direct real estate ownership. DSTs may focus on any commercial real estate sector, including multifamily housing, office property, medical, industrial, or retail.

While the minimum investment for a DST varies, it typically will exceed $100,000. This threshold is one reason why participation requires accreditation. DSTs are highly speculative and also have significant holding periods—often as much as ten years or more—making them highly illiquid. Investors who need or want to exit before the scheduled termination may have difficulty divesting their shares. The DST sponsor will need to ascertain your <a href="https://www.realized1031.com/blog/does-a-delaware-statutory-trust-requi…; title="Realized DST Accreditation Requirement">accreditation</a> before allowing you to invest.

<h2>Do I need accreditation to participate in crowdfunding?</h2>

Some crowdfunding opportunities are accessible to non-accredited investors. For example, the 2017 Tax Cuts and Jobs Act opened up some eligibility for start-up companies to expand the potential investor pool for equity crowdfunding. Each specific investment offering will specify whether the participants need accreditation or not.

Authored by Realized®.

Realized helps you exchange 1031-eligible investment properties for portfolios of commercial real estate that are customized to your shifting income needs, risk appetite, and investment goals across generations. By creating portfolios of fractional interests in Delaware Statutory Trusts (DSTs), Realized makes it easy to diversify investments across real estate sectors, geographies, and Sponsors.

Contact <a href="https://www.realized1031.com/" title="Realized Website">Realized</a> to learn more about their due diligence and portfolio construction methodologies.

Thu, 02/29/2024 - 14:20

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What is a Passive Investment?

02/01/23

Passive, low maintenance investments are increasingly popular with seasoned real estate investors that are looking to eliminate the headaches involved ...

Authored by: marketing

Authored on: Wed, 02/01/2023 - 16:16

Miscellaneous

The idea of passive income is prevalent—which is logical since the term refers to earning money without actually doing anything. That sounds too good to be true, and it is, but some income-producing activities require more involvement than others. For example, working at a job is one way to earn active income. On the other hand, investing can be either <a href="https://www.realized1031.com/blog/active-vs-passive-investing-the-key-d…; title="Active of Passive Investments via 1031 Exchange">active or passive</a>.

Directly investing in real estate is usually considered active income. The owner/investor is the landlord and must work to ensure the successful operation of the enterprise. For example, suppose you own one single-family home that you rent. You must manage the administrative aspects of the property, like the mortgage, taxes, insurance, tenant interactions, rent collections, maintenance, repairs, and more.

Many beginners are active real estate managers. Some enjoy the work, including the interaction with tenants. In contrast, others find it tedious or demanding (weekend calls about flooding or other urgent concerns can get old) and prefer to outsource some of the responsibilities. You can transition to more passive involvement if you hire a property manager to handle the day-to-day operations. However, you will pay some of your potential profits to delegate the work.

Real estate investments can be genuinely passive if you consider Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs). <a href="https://www.realized1031.com/blog/what-wealth-managers-should-know-abou…; title="What is a Delaware Statutory Trust">DSTs</a> are legal entities structured under Delaware laws that allow investors to participate in the ownership of commercial property as a beneficiary of the trust with a proportional share of the potential earnings. A Sponsor creates the trust, identifies and acquires the assets, and distributes profits. However, due to the lack of liquidity and other risks, DST participation is open only to accredited investors.

Any investor can invest in a Real Estate Investment Trust (REIT). <a href="https://www.realized1031.com/blog/how-do-reits-make-money" title="What is a REIT or Real Estate Investment Trust?">A REIT</a> is a company that buys, sells, manages, and finances commercial real estate. There is a variant that invests in financial instruments like mortgages. Most REITs are publicly traded on securities exchanges and are available to non-accredited investors with smaller amounts of capital available for investment. Some private REITs require accreditation and larger buy-ins.

<h2>Active versus passive stock investing</h2>

Stock investors can also be active or passive. A passive investor typically purchases shares in an index fund or ETF (exchange-traded fund) that holds a wide range of stocks and seeks to match the performance of a specific index, like the S&P 500 or the DJIA (Dow Jones Industrial Average). You can choose the fund that aligns with your goals and leave it alone.

Passive investing in a mutual fund is typically less costly and less risky than choosing individual stocks in an attempt to beat the market performance. Passive investors don't sell frequently but instead take a long-term approach. Active investors may achieve higher returns but must devote more time and accept the higher risk.

Authored by Realized®.

Contact <a href="https://www.realized1031.com/" title="Realized Website">Realized</a> to learn more about their due diligence and portfolio construction methodologies.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. 
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 
All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. 
All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income. 
Programs that depend on tenants for their revenue may suffer adverse consequences because of any financial difficulties, bankruptcy or insolvency of their tenants. 
No public market for DSTs currently exists, and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment. 
There is no guarantee that the investment objectives of any program will be achieved. 
The actual amount and timing of distributions paid by REIT programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time. 
Hypothetical examples shown are for illustrative purposes only. 
A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. 
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.  
There are risks associated with these types of investments and include but are not limited to the following:

<ul>
<li style="margin-top:13px; margin-left:8px">Typically, no secondary market exists for the security listed above.  </li>
<li style="margin-left:8px">Potential difficulty discerning between routine interest payments and principal repayment.  </li>
<li style="margin-left:8px">Redemption price of a REIT may be worth more or less than the original price paid.  </li>
<li style="margin-left:8px">Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. </li>
<li style="margin-left:8px">There is no guarantee you will receive any income. </li>
<li style="margin-bottom:13px; margin-left:8px">Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes.  </li>
</ul>

This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.

Thu, 02/29/2024 - 14:20

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Interview with Energy 1031 Specialist, Wolf Hanschen

11/23/15

Hanschen began his career more than a decade ago in the energy industry and has since served in a variety ...

Authored by: Anonymous

Authored on: Mon, 11/23/2015 - 17:19

Miscellaneous

Wolf Hanschen is a consultant and 1031 specialist for <a href="http://resourceroyaltyllc.com" target="_blank">Resource Royalties</a> in Dallas, TX. He is also the co-founder and managing director of <a href="http://peregrineenergypartners.com/" target="_blank">Peregrine Energy Partners</a>, also located in Dallas.

Hanschen began his career more than a decade ago in the energy industry and has since served in a variety of roles. During his career, he has raised over $400 million in the broker-dealer and RIA community, specializing in 1031 exchange investments out of real estate and into producing oil and gas properties.

<h2>With oil prices currently low and real estate prices high, would now be a good time to sell out of real estate and invest in oil and gas?</h2>

This is one of the first times I can remember when investors have the opportunity to sell an asset at a peak and buy into another asset at a trough. Real estate prices have been heading up for the last few years while oil and gas prices have done the exact opposite over the same time period. While some investors might shy away from the “negative headlines” surrounding energy, many feel that this is the best time to invest in a commodity which, at roughly $40/barrel, is experiencing its lowest pricing environment in the past 15 years.

<h2>Are oil prices finally in a position to rise in 2016, or is another year of low prices ahead of us?</h2>

Prices for everything eventually boils down to the simple economics of supply and demand. When new technology allowed the U.S. to double our oil and natural gas production in just a few short years, the market was flooded with excess supply and prices subsequently fell as a result. In the latter half of this year, operators in the “fringe areas” of exploration across the country have ceased their drilling activities which, over time, helps correct the supply/demand imbalance at which point we should see prices start to move higher.

<h2>With a high concentration of investors focusing efforts on reducing their tax exposure, have you seen many real estate investors 1031 exchange into your product?</h2>

We tend to see about two-thirds of our clients invest though 1031 exchanges and one-third through traditional cash accounts. Almost everyone completing a 1031 into our energy offerings are investors who have seen significant increases in their real estate assets and are looking to take advantage of this seller’s market but don’t necessarily want all of the proceeds to go right back into traditional real estate.

<h2>The fact that real estate is like-kind to royalty interests represents a huge opportunity for investors to diversify their funds between hard assets and passive investments such as royalty interests.  Can you elaborate?</h2>

Energy royalties have been considered “like-kind” to other forms of real property (real estate) for over 40 years but most investors aren’t aware that it’s even an option. Royalty rights are a deeded form of property (just like traditional brick and mortar real estate), only in this case our clients own the land UNDER the surface.

Keep in mind that royalty owners have nothing whatsoever to do with the drilling side of the energy business, but instead represent the “lucky landowners” who own property on which oil and natural gas are discovered. Royalty owners, therefore, don’t have any of the risk and/or liabilities found on the drilling side but instead get to enjoy a percentage of the gross income that’s derived from production on their property, paid by professional oil and gas operators each month.

By including royalties as part of a 1031 exchange, investors are typically able to increase their weighted annualized return and spread their portfolio risk across multiple asset classes. Royalties also provide clients with a natural hedge against inflation as well as additional tax benefits that might not be available through traditional real estate options.

<h2>In your experience why is it important for a client to hire a QI to handle the exchange versus a local attorney or CPA?</h2>

There are more rules and regulations involved in a 1031 exchange than almost any other type of investment I have seen. Having a qualified intermediary who focuses on nothing but 1031 exchanges can make all of the difference in the world to ensure a successful tax deferral. Which types of properties qualify for a like-kind exchange, what method should be used for identification purposes, and what key deadlines need to be kept in mind are all aspects of a 1031 that a trained QI will know.

I have seen several unfortunate examples in which clients chose not to engage a qualified exchange expert and ended up having their 1031 disqualified by the IRS because they failed to follow the exact guidelines of an exchange.

Thu, 05/12/2022 - 15:31

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America's looming macro-succession crisis: Boomers, Xers, Millennials and the future of your workplace

01/04/10

America has a looming macro-succession crisis. Learn more about the future of your workplace as Boomers, Xers, Millennials age into ...

Authored by: Anonymous

Authored on: Mon, 01/04/2010 - 07:00

Miscellaneous

I was recently re-reading a Seattle Times story from a couple years back on how <a href="http://seattletimes.nwsource.com/html/nationworld/2003723064_men26.html…; target="_blank">men in their 30s are earning less than their fathers did</a>. An interesting story top to bottom, but the concluding section drew me back around to something that I really haven't talked about enough lately - the looming generational macro-succession nightmare facing corporate America. It's impossible to say precisely how many businesses are going to feel the bite - or already are - but my best guess is somewhere between "many" and "most."

This part you may have heard before:

<blockquote>Diehard careerist baby boomers also might partly explain the inability of 30-something men to move up the income ladder as quickly as their fathers. From the moment Generation Xers entered the workplace, boomers have been the "ceiling" blocking their way up the income ladder, said Peter Rose, a partner with marketing-research company Yankelovich in Los Angeles. "The boomers stand out in defining themselves in terms of their work and have shown a disinclination to get out of the way," he said.</blockquote>

First, let's make clear that this is purely and simply a math question. There are X number of leadership and management jobs and X+1 Baby Boomers, and a good many of the ones I've worked for (including my current boss, may she never retire) are doing an awfully good job. So the ladder-blocking described above isn't a function of anything negative - it's just that there are so many Boomers that they represent a ceiling that many Xers can't get past.

Further, since Boomers represent perhaps the vastest institutional knowledge base of any generational cohort in the history of the world you can't argue that companies should want them out of the way. As valuable as this collective body of expertise is, though, it does come with a hangover. There's a basic numbers crunch that's about to hit, and it's going to throw a lot of companies into leadership transition crisis. Consider:

<ul>
<li>The Baby Boom was huge - depending on how you slice the numbers, the Boom Gen is around 75 million strong.</li>
<li>The leading edge of the Baby Boom was born in 1943, which means the first wave hit 65 - the traditional retirement age - over a year ago. Over the next five to ten years American companies will lose more than half of their leadership and management personnel, and a good chunk of what they know will be walking out the door with them, never to return.</li>
<li>Boomers dominate American corporate leadership. There are some Xers in power (the front edge of X is currently 48 years old), but not many. And a lot of the ones who are in positions of senior leadership are at the head of organizations forged through their own entrepreneurship - X representation in large legacy corps is smaller than some might hope. Of course, it's natural that 40 year-olds are going to report to 50 year-olds, but when that "grooming" tier is also clotted by the senior cohort, it means fewer opportunities for the next wave to prepare for leadership.</li>
<li>Generation X is a lot smaller - maybe 50 million or so. If we can extrapolate these larger numbers to seats at the management table, it suggests that for every three jobs currently occupied by qualified Boomers, there are only two qualified Xers ready to step in. And that assumes that the number of qualified Xers isn't being suppressed by the dynamic described in the previous bullet point.</li>
<li>For a wide variety of reasons, Generation X is going to bring a dramatically different leadership style to everything it touches. It's going to be more entrepreneurial, probably more cynical, and unfortunately it may not be as instinctively team-oriented as the generations ahead of it or behind it. In any case, the shift from Boomer management to Xer management is going to place a good measure of stress on many organizations.</li>
<li>Then there's the second wave transition: from Xer to Millennial. The oldest Millennials are currently about 29 and are approaching the age when they will be expected to assume a greater mid-management role. Again, the shift from X to Mill is dramatic - far more dramatic than the Boom-to-X transition, in fact. Millennials are committed, they're strong tacticians, they're extremely team-oriented (in stark contrast to my generation - we Xers are often too individualistic for our own good), and they represent a powerful capability for getting things done. On the down side, they're the least savvy of all four generational cycles at critical thinking and problem solving (for a number of reasons, none of which are really their fault). Add to this the fact that this particular cohort has grown up the most affluent in American history, and what emerges is a portrait echoed by every single leader and manager (and professor, for that matter) I have talked to, without exception: Millennials are collectively entitled and self-absorbed, and their managers report having to spend an inordinate amount of time and energy managing egos and emotional drama. Eventually this generation will likely evolve into a powerful force for productivity and change, but for the moment it's unprepared to cover for a sudden rapid promotion of the Xers in lower and middle management roles.</li>
<li>The Millennial Generation, by the way, is potentially larger than the Boom - some demographers say's it's the nation's first 100 million+ cohort, although the more common number is in the 75 million-plus range.</li>
</ul>

What should be emerging is a forecast of a significant management "stretch." The imminent retirement of a large management generation requires a massive and rapid influx of Xers, but at the same time, a wholesale promotion of Xers places the lower levels of management - the tactical execution level - at risk. And X simply isn't large enough to manage all that is going to be asked of it over the next decade and beyond.

American companies may be working hard on the macro-succession crisis, but if they are they're doing so behind one of the thickest veils of secrecy I've ever encountered. I haven't found any businesses talking about the problem, although my sample is admittedly too small to do too a lot of large-scale generalizing.

What I can do, though, is state with confidence that the dynamics described here are real and that organizations that aren't taking them seriously are in for a rough ride. There are ways of mitigating the crisis, and since it's going to be happening across all industries there are ways of turning this into opportunity.

But companies need to get started yesterday....

Thu, 05/12/2022 - 15:32

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The right questions can be better than good answers

08/05/09

Expert advice on teaching critical thinking skills to employees for organizations that are now relying on the talents of Millennials.

Authored by: Anonymous

Authored on: Wed, 08/05/2009 - 06:00

Miscellaneous

You know the old proverb. Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. I was reminded of this adage when I came across a recent <a href="http://blogs.harvardbusiness.org/hmu/2009/05/real-leaders-ask.php" target="_blank">Harvard Business Blog on "how to ask better questions."</a>

The author of that insightful post, Judith Ross, notes that when people (especially subordinates) come to us with questions, the natural instinct is to provide an answer. However, providing the answer may not be the best response.

<blockquote>
Although providing employees with answers to their problems often may be the most efficient way to get things done, the short-term gain is overshadowed by long-term costs. By taking the expedient route, you impede direct reports' development, cheat yourself of access to some potentially fresh and powerful ideas, and place an undue burden on your own shoulders. When faced with an employee's problem, you can respond in a much more value-adding way: by asking the right questions, help her find the best solution herself. We aren't talking about asking just any questions but, rather, employing questions that inspire people to think in new ways, expand their range of vision, and enable them to contribute more to the organization.
</blockquote>

The distinction Ross draws is critical for the manager and the leader. On the one hand, you can be short-term task-focused, and in that case you provide an answer (or better yet, the answer). On the other hand, you can think long-term and focus on the health and self-sufficiency of your learning organization. That is, you can give the employee a fish or you can teach the employee to fish.

The expedient approach may get a problem off the desk more quickly - a seductive choice in a busy and resource-strapped environment - and it takes an investment of time and effort to teach fishing skills. However, the leader who consistently teaches discovers that over time fewer and fewer reports walk into the office with questions. They've learned to be self-sufficient, they've learned to solve problems, they've learned to think, and most critically, they have learned to learn. Instead of an organization with one person at the top who knows the answers, you have an organization where everybody either knows the answer or is empowered and equipped to find or develop that answer. This is especially important in <a href="/blog/americas-looming-macro-succession-crisis-boomers-xers-millennials-and-future-your-workplace" target="_blank">organizations that rely on the talents of Millennials</a>; this cohort is energetic and diligent, but is not by nature very good at critical thinking or problem-solving.

This results in a variety of benefits for the organization and its people. Here are a few things that occur to me off the top of my head:

<ul>
<li>More efficient use of manager's time and effort.</li>
<li>More efficient problem solving throughout the organization.</li>
<li>Stronger collaboration as team members grow more confident and capable.</li>
<li>Organization ceases to be the sum of its parts and becomes a full-fledged learning organism where the whole far exceeds the sum of the parts.</li>
<li>Fosters a greater distribution of authority and allows many important decisions to made closer to the locus of expertise.</li>
<li>Organization becomes a desired place to work, improving ability to attract and retain talent (and all the implications this has for staffing and turnover-related costs).</li>
<li>In larger organizations, a single group or department can become an incubator for talent development across the entire business.</li>
<li>Productive cultural change results as success breeds success (a new <a href="http://web.mit.edu/newsoffice/2009/successes-0729.html" target="_blank">MIT study suggests that we learn from successes</a> while we may not learn from failures at all).</li>
</ul>

Of course, all these points have clear and powerful implications for the organization's productivity and prospects in the marketplace.

I'll always remember a class I taught once, a number of years ago, at a small college in North Carolina. I was forcing my students to slog through a particularly frustrating problem, and every question they asked I answered with a question of my own. Finally, one of my brighter (and more vocal) charges snapped: "Will you just tell us the answer?!!"

No, I wouldn't, and if I had I'd have been doing them a disservice. She may, over time, have forgotten any answer I gave her, but I promise you, she'll never forget how to fish.

The same goes for your employees.

Thu, 05/12/2022 - 15:32

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The highest level of financial and data security available

05/05/09

Read a new brief that articulates Accruit's security processes and philosophies. Client security is our top priority.

Authored by: Anonymous

Authored on: Tue, 05/05/2009 - 09:36

Miscellaneous

It's no surprise that people are concerned about security these days. We've all seen the stories - from ponzi schemes to hackers to highly publicized business failures - so it makes sense that individuals and business would want to make sure their valuable financial and information assets are being safeguarded by the most reliable processes available. At Accruit we hear these questions and we welcome them because we have no higher priority than the security of our clients’ funds and data.

We've recently completed a new brief that articulates Accruit's security processes and philosophies. Our clients' funds are held in the nation's top-rated financial institutions, their data is secured by hundreds of ISO and SAS audited processes, and that's just the beginning.

We encourage you to review the <a href="/sites/default/files/Security.pdf" target="_blank">Accruit security policy</a> sheet and <a href="/contact-us" target="_blank">contact us</a> if you have questions.

Thu, 05/12/2022 - 15:33

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