WHY INVEST IN REAL ESTATE?

In a world of dramatic change in business, technology, and the financial markets, it is natural to wonder whether the basic principles of investing have changed. Investors today face a challenging and unprecedented environment. Valuations of market indexes have retreated from historic highs, displaying dizzying volatility.

Pension and other investors have been reexamining their asset allocations in response to financial market turbulence and declines in account size or funded status. In many cases, asset allocations are suggesting a real estate component should be added.
Whether in the office, retail, or hotel sector, Allegiance can provide investment opportunities to those seriously looking to place their money in real estate. Naturally, this sort of investment is not a “cash now” type of endeavor. Allegiance’s typical holding period ranges from one to five years. There are four basic principles supporting why an investor would choose real estate.

APPRECIATION
Appreciation refers to growth in value. Carefully analyzed investment real property, located correctly and priced fairly, may increase in value over time. By buying the right property in the right location, we can absolutely control the supply of the unique property. Appreciation is analogous to growth in stock ownership.

CASH FLOW
We analyze investment real property for its ability to generate cash flow from operations.  Often, smart management decisions can either decrease operating expenses or increase revenue of a real estate investment. Wealth can be created by decisions such as changing the use of a building, buying property in the path of other development, or improving the function of a building. Cash Flow is analogous to interest from bond ownership or dividends from stocks..

DEPRECIATION
Depreciation is a convention of accounting and tax laws. It is the gradual, mandatory expensing of improvements to real estate over the life of those improvements.  The property can actually be appreciating in value while you are depreciating the asset on your tax return.  The rules for depreciation usually bear no relationship to the market value of the same real estate.  Depreciation can be thought of as non-cash expense of real property. This non-cash expense can reduce current taxable income while not reducing actual income. Depreciation is allowed in real estate investing.

1031 EXCHANGING
Generally, a sale of an appreciated investment triggers a tax on the profit (gain). Internal Revenue Code section 1031 allows an investor to sell and repurchase investment real property without current tax liability. By selling and repurchasing using section 1031, the investor can create substantial additional wealth. This section does not apply to stocks, bonds, or any other intangible investments. Consult your tax advisor for an explanation of the benefits of a 1031 exchange.