Managing Risk of Investment Real Estate

A single investment in a real estate asset can be large and constitute a significant portion of an investor’s assets, bringing a high level of concentrated, property-specific risk. Real estate is generally illiquid and, if held for a long time, may have a significant unrealized taxable gain.

A seller considering sale or monetization of a property should consider its current value relative to historical and expected value in the future, taxes on any transaction, availability of credit, and interest rate levels.

Strategies to consider include:

  • Mortgage financing can be an attractive strategy to raise funds without loss of control of the property. With a nonrecourse loan the lender’s only recourse is to seize the property if the loan is not paid. The borrower effectively has a put option on the property.
  • donor-advised fund or charitable trust can allow the property owner to take a tax deduction, gift more money to the charity, and influence the use of the donation.
  • sale and leaseback can provide immediate funds while retaining use of the property.

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