1031 Exchange- Defer Your Tax Obligations

Investing in hotels and real estate1031 Exchange- Defer Your Tax Obligations continues to be one of the best ways to build your wealth, grow your portfolio, and minimize your taxes. Thanks to Section 1031 of the Internal Revenue Code, investors are able to enjoy these advantages.

What Is Section 1031?

Section 1031 of the Internal Revenue Code allows an owner of any business or investment property to defer paying federal capital gains taxes and depreciation recapture if they exchange business or investment properties of like-kind. The 1031 Exchange allows you to swap properties or businesses while ignoring the taxable gains and reinvesting it into more valuable property. Essentially investors are using money that would otherwise be due in taxes to continue funding a bigger portfolio.

What are the Benefits?

There are numerous benefits that can be the result of a 1031 Exchange, but there are a number of requirements that must be met in order to complete an exchange. The most obvious benefit of a 1031 Exchange is tax deferral. The true power, though, lies in what comes as a result. Depending on your investment objective, a 1031 Exchange offers a wealth of opportunity.

Preserve Equity

If you are looking to preserve your equity, a 1031 Exchange can do that. Tax deferral will allow your initial investment to continue to grow. And since there’s no limit on how many times you can do a 1031 Exchange, you can defer indefinitely and continue to reap the benefits.

Purchasing Power

Or if you’re simply looking to increase your purchasing power, a 1031 Exchange can do that too. By allowing you to use all the sale proceeds- money that would otherwise be tied up in taxes- you can leverage it into more valuable real estate, which can subsequently increase the return on your investment by producing more cash flow and greater depreciation values.

Diversify Investments

And if you’re looking to diversify your portfolio and improve your investment position, a 1031 Exchange can do that too! Although this tax provision is limited in scope to only property located within the US, diversifying into different geographic regions or into different types of business or investment properties may be desirable for you or your business.

But if you’re looking to split up property or consolidate properties, a 1031 Exchange can do that too! Allowing you to roll over the gain from property to property, gives you the option to exchange a large property and split up the gain among several smaller properties or to exchange multiple properties and consolidate the gain into one larger property.

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Is it Right For Me?

A 1031 Exchange may be just the thing if you are intending to sell business or investment property, and you plan to buy business or investment property of like-kind, within 180 days following the closing of your relinquished property.

It is ideal for taxpayers looking to sell their appreciated property–a low tax basis, business or investment property that has been held for more than one year. However, it should not be utilized if you have recently refinanced the property you want to sell, nor is it recommended if the transaction will result in a capital loss.

It’s important to know, though, that 1031 Exchanges are subject to strict rules. And depending on the type of transaction involved, these can sometimes be very complex. However, the use of a qualified intermediary to coordinate the essentials is imperative to the success of any exchange. Despite its complexity, though, 1031 Exchanges remain a very powerful investment strategy- that allows ‘real estate to help defer your tax obligations!

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Are Hotels a Better Investment Than Multi-Family or Fix-and-Flip?

Are Hotels a Better Investment Than Multi-Family or Fix-and-Flip?

There’s no shortage of opportunities to invest in real estate—so why zero in on hotels, in particular? It’s a question we get asked regularly here at EquityRoots. Truthfully, of all the myriad ways to add real estate to your investment portfolio, hotels are among the least commonly discussed. Why is it, then, that we would offer our investors the opportunity to enter so specific a niche?

Before we answer that, we’ll offer the disclaimer that yes, there are many people out there who make money off of multi-family properties, fix-and-flips, and other real estate opportunities. By no means are we suggesting that these ventures cannot be fruitful. All we are saying is that, if you put all the pros and cons on the ledger and really think it over, you just might find yourself agreeing with us that hotel investments are uniquely promising, and distinctly advantageous.

Real Estate Investment 101

To understand what makes hotel investment so loaded with potential, you’ve first got to understand some of the basics of real estate investment. Let’s break it down to the simplest possible level—the most basic concept of real estate investment. When you buy a home, an apartment building, or a hotel—property of any kind, really—you have to understand that it’s not going to make any money just sitting there empty. To generate a profit, any real estate investment is going to have to have tenants. You’ve got to have warm, rent-paying bodies in the building for it to be a moneymaker.

So now, consider the rent generating potential of a hotel versus other forms of investment. With a hotel, you’re generating rent money night by night. With most anything else, you’re talking about a month-to-month or even year-to-year lease.

It boils down to simple mathematics, then: With a multi-family unit, you may generate $1,200 per month. With a hotel, it may be $69 per room per night. Now, in some cases, the hotel may not come out on top—and there are other factors to consider, such as hotel maintenance expenses. But if the hotel’s in a good market, it’s got good management, and it’s associated with a good brand, we’re willing to suggest that much of the time, hotel investment is going to be uniquely lucrative.

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The Logistics of Running a Hotel

We mentioned that there are some hotel maintenance expenses to take into consideration, and indeed there are. For instance, you’ll have to have someone come in and clean the rooms and provide other upkeep services, which naturally eats into the hotel’s overall profit margin.

But even operationally, hotels offer some unique perks over other real estate projects. For example, with a hotel, there’s no concern over delinquencies, or renters who simply won’t pay their fair share. You also don’t have to face the worry of your property being vacant for a long stretch of time; again, assuming the hotel has a good market, a good leadership team, and a recognizable brand, you can feel confident that there are going to be tourists and travelers paying for rooms.

Investing with EquityRoots

But all of this underscores the big reason why hotel investment is, comparatively, a fairly seamless and accessible investment: When you invest through a platform like EquityRoots, you’re not actually signing up to run the hotel. You’re investing in an experienced hotel management team with a peerless track record and a trustworthy flag on its pole. In fact, EquityRoots has sufficient clout in the hotel industry that we can gain access to The Big 4—Marriott, Hilton, IHG, and Hyatt.

Those brands aren’t available to just anyone—not even investors with huge wads of money or a few years of actual hotel experience. They only trust their coveted name recognition to truly seasoned, expert hoteliers—and EquityRoots is proud to be on that list.

The bottom line: An investment with EquityRoots is smart. We know the hotel business. We choose promising markets and ensure that our hotels are well-run and that they offer brand recognition. All the pieces are in place for a robust, fruitful real estate investment.

Learn more about it by contacting EquityRoots today!

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EB-5 Visa Program— A New Way to Improve the Economy

EB-5 Visa Program— A New Way to Improve the Economy

Since 1990, the EB-5 investor program has gradually increased in popularity in the United States over the years. Initially, not that many people—including prospective foreign investors from China, India and Africa—knew about this glorious opportunity to become a legal citizen of the United States. That is not the case anymore, especially during the last (5) years. The demand for EB-5 visas seems to have reached new heights considering the huge spike in new hotel and real estate developments and crowdfunding platforms operating in the United States. In addition, a lot more real estate developers and issuers have been actively pursuing foreign investors overseas by flying out to promote their project proposals in person. As a result, there has been an increase in applications for EB-5 visas— which led to a cap of 10,000 applications being set in the United States.

What is an EB-5 visa?

The EB-5 visa program is a process that allows foreign immigrant investors to become permanent legal residents of the United States by performing and satisfying certain conditions. If these conditions are satisfied, that particular immigrant investor will receive a visa (equivalent to a green card) that will allow them to live in the U.S. To be eligible for an EB-5 visa, the immigrant investor must invest at the minimum $500,000 in a Targeted Employment Area (high unemployment or rural area) or $1 million in a new commercial entity that produces a for-profit business.

Furthermore, through this investment, there are more conditions that need special attention from prospective foreign investors. First, foreign investors should be aware that they must be able to demonstrate that their investment created or preserved at least 10 full-time jobs for qualified employees within the United States. Secondly, if foreign investors can provide proof that 10 full-time jobs were created within two years, the investor and his family (spouse and children under the age of 21) will be eligible to have the temporary restrictions removed from their status and to become permanent residents of the United States.

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What’s so special about the EB-5 visa?

In addition to being a proven foreign investment program, the EB-5 visa program has the potential to inject some life into the United States economy as well. For starters, the money associated with the million dollar investment will contribute to the funding of new business entities in the U.S. In addition, these respective foreign investors will own a share in that particular project or company they choose to invest in. And lastly, there will be an influx of jobs into the U.S. economy— thus allowing for the unemployment rate to decrease and for the Americans to sustain their quality of living.

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Intrastate Crowdfunding, a Game-Changer?

Intrastate Crowdfunding, a Game-Changer?

The state of Illinois recently proposed a bill for intrastate crowdfunding. The intrastate crowdfunding law proposes the ability for unaccredited investors to participate in offerings that have a physical presence in the same jurisdiction where all investors are domiciled. For example, the intrastate crowdfunding law would allow all non-accredited investors that live or reside in Illinois to invest into a hotel crowdfunding project that is also located in Illinois.

So what’s the catch? All investors must be from Illinois. Not a single investor can reside out of state. Albeit, limitations in place— intrastate crowdfunding might be a solution for non-accredited investors that are often denied from investing into businesses. Despite being financially savvy and stable, many non-accredited investors are often prevented from investing under 506(c) public offerings. Many States are tired of waiting on the Federal Government and the SEC to finalize rules that would allow more unaccredited investors to participate, hence States have independently taken action into their own hands with State sponsored legislation.

House Bill 3429, regarding intrastate crowdfunding, in Illinois was well received by local business owners and entrepreneurs. The bill balances the needs of investors with the needs of businesses looking to raise capital. If and when the intrastate crowdfunding law becomes effective, EquityRoots.com will be on the verge of being able to allow non-accredited investors to participate in intrastate offerings. Equity crowdfunding could possibly be a workable source of capital and game-changer for Illinois small businesses and entrepreneurs. Check out the article published at crowdfundinsider.com for more information on the proposed bills regarding intrastate crowdfunding.

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Recent Hotel Construction Spike

Equityroots, Equityroots Inc., Blog, Recent Hotel Construction Spike

Building new-construction real estate has traditionally been viewed as a risky endeavor. Lenders reflect this opinion with higher equity thresholds and more expensive interest rates. However, the recent trend in new commercial development gives us the evidence to rebut this opinion. There are investors and developers who strongly believe the rewards of developing new-construction hotels right now outweigh the risks.

Our legal and land-use experts have studied the real estate market and believe that new-construction hotel assets are the safest bets right now. Newer hotels often boast the latest designs and modern layouts which enhance guest experience. Not only do major hotel brands prefer to see their latest designs, they often protect it— offering area of protection and financial incentives to develop their latest prototype. Don’t forget to consider substantial cost savings in maintenance expenses and energy cost when you have a new-construction hotel asset.

New-construction hotels offer amenities that older hotel designs just can’t match. With the recession over and a strengthening economy ahead of us, business travelers are back in full force and traveling often. It is important to remember that corporate travelers are not price conscious first clients, meaning they don’t have a strict budget for overnight accommodations. Corporations don’t mind spending $15-20 more to keep their employees comfortable in a newer hotel.

New-construction hotels often become high priority targets for institutional investors like REITs and funds. Institutional investors demand the highest quality properties for long-term core holdings. Investing into real-estate that is also appealing for REITs often translates into a very handsome premium at time of disposition.

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Schaumburg, IL Hotel Hosts Important NFL Meetings

Equityroots, Equityroots Inc., Schaumburg, IL Hotel Hosts Important NFL Meetings

Over the last three decades, the National Football league (NFL) has graced the hearts of sports fanatics across the world and has become entrenched in the homes of almost every American as evidenced by the Sunday afternoons and evenings when most Americans are glued to their TV’s.

It really is remarkable how the NFL has not just become a weekly television event but also a global brand. Everywhere we go—including outside of the U.S., there seems to be a kid or an adult wearing a sports jersey or a hat of their favorite player or football team. This speaks volumes about how the NFL has managed to expand its influence to all parts of the world in such a quick and efficient fashion. It’s neither a coincidence nor a surprise that football is starting to be considered “America’s pastime” rather than baseball nowadays.

Currently, the NFL doesn’t just market live football games on TV, but they also promote other events such as training-camps for each professional football team, the Super Bowl, and the NFL Draft. The TV ratings for each of these events are usually mind boggling—meaning they are probably going to be the most watched program of the day it’s aired. In addition, the cities, where these events are hosted, will reap the benefits because of the amount of commerce and business that will take place during the respective event. That is why cities from all over the U.S. will do “whatever is takes” to be awarded the host city of these NFL sponsored events, in particular the Super Bowl. This is no different for the NFL Draft.

During the week of August 10 to August 14, the NFL owners stayed at the Hyatt Regency Hotel in Schaumburg, IL to discuss the potential expansion of a few franchise teams, and the location of the 2015-2016 NFL Draft. The city of Chicago was the “center of attention” for the NFL community.

Schaumburg is the center of commerce for the Chicago land area. The city’s ability to offer abundant hotel conference and hotel meeting room space, paired with a fresh supply of premium branded hotel rooms is the reason why global corporations consistently pick Schaumburg to host their events and meetings. Additionally the city’s diverse accessibility to expressways and O’Hare International Airport is why businesses choose to stay in Schaumburg hotels.

From the city of Chicago’s perspective, city officials view the Draft as a major demand driver—thus providing a major boost to the local economy. For example, there will probably be a spike in the hotel occupancy and retail businesses as evidenced by the hotels filling up their rooms and clothing stores selling out their jerseys or hats.

With the global appeal and influence of the NFL brand, this will be a glorious opportunity for the City of Chicago. On Tuesday the NFL announced that Chicago would indeed be the host of the 2016 NFL Draft once again.

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The Truth Behind Crowdfunding

Equityroots, Equityroots Inc., Blog, The Truth Behind Crowdfunding

What is Crowdfunding?

Just recently, it seems like there has been vibrant excitement surrounding the concept of “crowdfunding” in the real estate market. Crowdfunding is on its way to upset the status quo in real estate finance, allowing savvy investors of all sizes to pool capital and participate in the investment marketplace alongside institutional investors. Crowdfunding is considered to be an advantageous, innovative, and cutting-edge practice amongst real estate professionals. However, crowdfunding has yet to stamp its footprint in mainstream America, or for that matter towards the crème de la crème of the real estate community.

Crowdfunding is the window into democratizing the investment marketplace, allowing everyday-people a chance to invest into larger assets that are thriving like franchised hotels and resorts. Let’s face it, middle class America doesn’t have a $2-3 million equity check to write. Should they be denied from earning the same returns that wealthy individuals earn in highly rewarding real estate assets? What if smaller investors were allowed to put their beans into a deal right next to the big guys and take a fractional interest in the project?

Crowdfunding aims to level the playing field, allowing people to invest that would otherwise not be able to. Critics still question whether both, the real estate market and crowdfunding market, can create a new and prosperous path for investors, both domestically and internationally, by leveraging profits from U.S. real estate investments. Well, the truth is “crowdfunding” has answered all the uncertainties and silenced the critics. Crowdfunding takes advantage of and continues to make use of the accessibility of the Internet, and the vast networks that stay connected through the technology medium. With tools like social media, it’s quite easy to discuss a new business plan while simultaneously building support and attracting investors.

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Where Does the Law Stand on Crowdfunding?

The Jumpstart Our Business Startups (JOBS) Act of 2012 remains the catalyst for allowing “crowdfunding” to prosper via the Internet. Absent this recent legislation, there was neither the ability to promote nor the ability to solicit investors to make investments for real estate assets. Specifically, Regulation D, Rule 506 placed heavy restrictions on fundraising efforts—namely preventing third parties from advertising private investment opportunities. However, an exemption to securities registration, Rule 506(c) allows real estate developers to raise money and to advertise private investment opportunities to accredited investors (those with a net-worth of at least $1 million USD) under certain circumstances. As a result, the JOBS Act (a.k.a. Title II) gave crowdfunding platforms access to large pools of potential investors via the Internet. Today investors have direct access to a private selection of real estate offerings, where they can browse deals and make informed decisions from the comfort of their living room.

What is the Potential of Crowdfunding?

Even though “crowdfunding” has been around for a couple years, it has just scratched the surface in terms of reaching its full potential. Currently, crowdfunding platforms tend to target mostly wealthy accredited investors. However, there is endless potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners and venture capitalists with newer legislation like Regulation A+ in place. Ideally, there should be a platform where all private offerings are open to the general public, including non-accredited investors.

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