It's the 4th Quarter, Time to Consider Your Investment Portfolio Mix? 

This is the time of year for reviewing our financial goals and identifying appropriate adjustments for the coming year. It's a great time to review the experts' predictions for the economy and potential impact on your risk profile. A common goal is to have the ability to wake up each morning with the physical health,  knowledge, friends, financial freedom, and passion to do what you want to do that day. Financial freedom means that your investment income supports your lifestyle expenses. We like to call this "Wake Up Money", and real estate can be a great vehicle to achieve it over time. 

Most investors have a mixture of stocks, bonds, and real estate in their portfolios. Of course, we appreciate real estate because it provides one of the 3 basic needs in life (food, shelter, clothing), so most folks understand it and already own a home or rent a home.

Factors for evaluating investments include financial return on investment, appreciation/growth, volatility, tax impacts of ownership and selling, personal preferences/attractiveness and comfort level or risk tolerance for the investor. 

We help clients evaluate real estate investment, considering some of the following benefits:

• Cash flow ("wake up money")
• Leverage (the ability to purchase real estate with 0-30% cash down payment and financing)
• Debt reduction - tenants or guests who sty in the property make your payments
• Tax savings - you can depreciate investment property and write off expenses
• Appreciation - over time the value of homes and condos have risen dramatically

There are various ways to purchase investment real estate:

• The most common method is to secure a mortgage over a period of 15-30 years.
• IRA funds can be used to purchase investment real estate using a self-direct IRA and the services of a bank, trust company, or other entity approved by the IRS to act as custodian.
• Investors sell an investment property and purchase replacement property using a 1031 Exchange, allowing them to defer capital gains on the sale allowing the to improve and expand their real estate holdings.
• Of course, investors also pay cash for investment properties when it makes sense.

Each option requires a different amount of cash to invest and is subject to guidelines regarding legal and tax compliance. There are certain timeline requirements to consider when executing a 1031 Exchange and restrictions regarding related parties for both self-directed IRA investments and 1031 exchanges. There are also very different tax implications for each type of purchase.

We have personal experience with each type of investment, and we work with trusted lenders, financial advisors,  attorneys, CPAs, qualified intermediaries, custodians, and escrow companies.

While inventory levels for Maui real estate are low, prices continue to increase. In Maui, single-family median home prices have increased 6.5% and condo median prices have increased 4.4% on a year-to-date basis. Unit sales in September 2019 for homes were 118, up from 80 units in September 2018, while condo sales were comparable to last year, with 119 sales in 2019 compared to 123 in September last year.

The majority of experts are predicting a U.S. recession sometime in 2020-2021.

In spite of experts' expectations of a U.S. recession within the next year or so, they predict continued real estate price increases next year between 2.5% and 3.7% due to the continued low inventory levels.

As you evaluate your investment portfolio for the upcoming year, we can assist you with planning decisions about future real estate investments by discussing your goals and potential strategies to achieve them. 

Published in Neighbors of West Maui Magazine - December 2019