Real Estate and Bucket-Based Retirement Planning
Tyler Schelhaas and Tom Lyons talk about market volatility and bucket-based retirement planning.
Tom:
I have heard from many real estate investors that they rarely invest in the stock market, and I have heard from many stock market investors that they rarely invest in real estate. What would you say to those individuals?
Tyler:
Some of the strongest financial plans we have seen at Vector Wealth Management are from individuals who invest in both real estate and the stock markets and have properly incorporated them into their retirement planning.
Tom:
How does one “properly incorporate” them into their retirement plan?
Tyler:
As a bucket-based investment firm – we seek to understand how much money each person needs out of their portfolio every year. One of the items that affect this amount of cash flow they have coming in from various sources like real estate investments.
Tom:
Alright. You look at the cash flow from their real estate as an income source. But what about the asset value of the real estate itself?
Tyler:
Great question Tom. We absolutely need to capture the value of the real estate investment inside their plan. We have also found that many real estate investors, especially in the later stages of their lives, may look for a liquidity event.
Tom:
When I hear liquidity event all I can think about are taxes!
Tyler:
That’s not an uncommon thought – it’s the role of a financial advisor to look at all aspects of their clients’ financial lives. This involves looking at what’s called a 1031 real estate exchange into a Delaware Statutory Trust or DST.
Tom:
What’s a ten-thirty-one to DST do?
Tyler:
A real estate investor could potentially perform a tax-deferred exchange from a private real estate investment into a passive, pooled real estate investment that generates regular cash flow. Often these can be a good option for real estate investors that want to reduce complexity, AND still continue to defer unrealized capital gains.
Tom:
Sounds like an interesting idea.
Tyler:
It certainly can be, depending on the specific situation of each client. Consult with a financial and tax advisor to learn more.
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