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Direct Investment Overview

You may wish to consider adding direct investments in tangible or hard assets to your client’s portfolio. These types of investments may provide tax benefits, income, and/or capital appreciation for the client without correlation to the equity markets.

Although a 1031 exchange falls under private real estate, it is a different type of investment. These are used for clients that own investment real estate they would like to sell but want to stay invested and defer the taxes owed from the sale. The IRS code 1031 allows for the exchange of investment real estate while deferring the taxes. There are many rules associated with 1031 exchanges. ProEquities can help you understand and navigate these rules before you proceed with your client.


Non-traded BDCs invest in loans to private companies. A private company is not owned by stockholders but by a private entity. Just because a company is private does not mean it is small or insignificant; some very large, well-known companies are privately held. The federal government created BDCs in the 1980s to encourage investing in private companies and stimulate growth. Investors in a non-traded BDC receive income generated by the payments on the loans within the investment portfolio. These programs are generally for income purposes with very little growth associated (if any).

Interval Funds are another way to invest in the commercial real estate market but provide for further diversification. By investing in existing non-traded REITs, traded REITs, and real estate equity, the Interval Fund provides a managed portfolio of commercial real estate assets with focus and diversification.  

 


Much like the BDC structure, the non-traded closed end fund is designed to make long-term private investments. These funds are regulated under the same rules as the “1940 Act” but offer private debt investing to a wider range of investors.

Non-Traded REITs are total return investments that typically provide high distributions plus the potential for moderate, long-term capital appreciation. REITs are attractive additions to investment portfolios because there is a relatively low correlation to publicly traded real estate stock returns as well as providing diversification. In addition, reduced volatility and simple tax treatment are appealing traits of non-traded REITs.
 


There are two types of oil and gas programs available through ProEquities: drilling investments and programs concentrated on energy development. Drilling programs can provide significant tax benefits to investors as well as possible income. The energy development offerings may invest in a wide array of energy related investments such as: pipelines, oil trucking and other avenues used in the drilling or extraction process. Oil and gas programs can provide further options in helping you map out your clients individual investment strategies.

Private real estate programs, such as Limited Partnerships and Private REITs, offer access to investment grade real estate, professional expertise, and the benefits of ownership without the daily issues that often accompany them. These programs are for accredited investors only and are not registered with the SEC which typically means higher minimums and less associated administrative costs.


 

 

Any discussions regarding the above programs must be preceded or accompanied by a prospectus or offering memorandum. An investment in the any of the above programs can be speculative, lack liquidity, involve substantial fees and can result in a loss of your entire investment. There is no current market for these programs. There are suitability requirements for investors that must be met, including those that require an investor to be an Accredited Investor. Certain states may also have additional requirements that apply. Discussions regarding a specific tax strategy are for educational purposes only and should not be considered tax advice. You should consult with a tax professional for your specific situation.