Tenant Mix one of the six critical factors in Real Estate investing

Financial Planning Dentist

One of the six critical factors that can make or break a real estate investment is the tenant mix. Tenant mix refers to the types of businesses or individuals that occupy a property. It can impact the near-term cash flows and long-term appreciation potential of an investment. In this blog post, we will discuss why tenant mix is an important component of investing better in real estate and how it can improve an investor’s asset.

What is Tenant Mix?

Tenant mix refers to the variety of tenants that occupy a property. It includes the types of businesses, the sizes of the units, and the lease terms. The goal of tenant mix is to create a balanced mix of tenants that will generate the highest possible returns for the property owner. The ideal tenant mix will vary depending on the type of property and its location.

Why is Tenant Mix important?

Tenant mix is important because it affects the performance of the property. A good tenant mix can improve the cash flow of a property, while a poor tenant mix can lead to high vacancy rates and lower rental income. Additionally, tenant mix can impact the long-term appreciation potential of an investment. If the property has a mix of strong, stable tenants, it is more likely to retain its value over time.

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How Tenant Mix improves near-term cash flows

Tenant mix can impact the near-term cash flows of a property. A good tenant mix will attract a variety of businesses that will generate a steady stream of rental income. For example, a retail property with a mix of anchor tenants (large retailers that draw customers to the property) and smaller specialty stores will create a diverse stream of rental income. This will help to stabilize the property’s cash flow and reduce the risk of high vacancy rates.

Conversely, a poor tenant mix can lead to high vacancy rates, which can hurt cash flows. For example, a retail property with several tenants in the same industry can become over-saturated. If one of these tenants closes or moves out, it can lead to a domino effect where other tenants follow suit. This can leave the property owner with a high vacancy rate and reduced rental income.

How Tenant Mix improves long-term appreciation

Tenant mix can also impact the long-term appreciation potential of a property. A good tenant mix can create a more valuable property over time. For example, a commercial property with a mix of national and local tenants is more likely to retain its value over time. National tenants are typically more stable and have longer lease terms, while local tenants can bring a unique flavor to the property. A diverse tenant mix can help to create a more resilient property that can withstand economic downturns.

Conversely, a poor tenant mix can lead to a decline in property value over time. If the property has a high vacancy rate, it can become less attractive to potential investors. Additionally, if the tenant mix is overly concentrated in one industry or tenant type, it can lead to a decline in property value. For example, a retail property with several tenants in the same industry may struggle to attract new tenants if that industry experiences a downturn.

In conclusion, tenant mix is a crucial component of investing in real estate. A good tenant mix can improve the near-term cash flows and long-term appreciation potential of a property. Investors should carefully consider the types of tenants that will occupy their property and strive to create a diverse tenant mix that will generate the highest possible returns. By doing so, investors can maximize their chances of success in the real estate market.

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Kevin Taylor

A guide to Trusts in Estate Planning

Estate planning often involves the use of trusts to manage and distribute assets in a way that aligns with the individual’s goals, minimizes taxes, and ensures the well-being of beneficiaries. There are various types of trusts available, each serving specific purposes. Here is an overview of some common types of trusts used in estate planning: 1. Revocable Living Trust (RLT): – Also known as a living trust, this allows the grantor (the person who creates the trust) to retain control of their assets during their lifetime. – Assets in the trust can avoid probate, ensuring a smoother and more private transfer of wealth upon the grantor’s death. – Can be modified or revoked by the grantor during their lifetime. 2. Irrevocable Trust: – Once established, this trust generally cannot be altered or revoked by the grantor. – Common types include irrevocable life insurance trusts (ILITs) and charitable remainder trusts (CRTs). – Offers potential estate tax benefits and asset protection, but sacrifices some control over the assets. 3. Testamentary Trust: – Created within a will and comes into effect upon the death of the grantor. – Often used to provide for minor children or manage assets for beneficiaries with specific needs. – Can be flexible in its terms and conditions. 4. Charitable Trusts: – Designed to benefit charitable organizations while providing potential tax advantages to the grantor or their estate. – Common types include charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). 5. Special Needs Trust (SNT): – Designed to provide for individuals with disabilities without jeopardizing their eligibility for government assistance programs like Medicaid or Supplemental Security Income (SSI). – Ensures that funds are used for the beneficiary’s supplemental needs and quality of life. 6. Generation-Skipping Trust (GST): – Designed to pass wealth to beneficiaries who are at least one generation younger than the grantor, typically grandchildren. – Often used to minimize estate taxes by bypassing the grantor’s children’s generation. 7. Qualified Personal Residence Trust (QPRT): – Allows the grantor to transfer their primary residence or vacation home to an irrevocable trust while retaining the right to live in it for a specified term. – Reduces the taxable value of the property for estate tax purposes. 8. Dynasty Trust: – Created to provide long-term wealth preservation by transferring assets to multiple generations. – May be subject to the generation-skipping transfer tax but can help protect family wealth from creditors and estate taxes. 9. Family Limited Partnership (FLP) or Family Limited Liability Company (LLC): – While not technically trusts, these entities are used in estate planning to centralize family assets, distribute income, and reduce estate taxes by allowing for minority discounts. 10. Qualified Terminable Interest Property (QTIP) Trust: – Commonly used in second marriages, this trust provides income to a surviving spouse while preserving the principal for the benefit of other heirs. – Often utilized to defer estate taxes until the second spouse’s death. These are just some of the many types of trusts available for estate planning. The choice of trust depends on an individual’s specific goals, financial situation, and the needs of their beneficiaries. Consulting with an experienced estate planning attorney and your Certified Financial Planner (CFP) is crucial to determining the most appropriate trust or combination of trusts for your unique circumstances.

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Kevin Taylor

Rising Litigation in 401(k)’s and Efforts to Support Business Owners

The landscape of litigation under the Employee Retirement Income Security Act (ERISA) remains highly active, as highlighted by the 48 new excess fee and performance lawsuits filed in 2023. While this is a decrease from the 89 complaints in 2022, it still reflects a sustained period of high litigation activity over the past eight years, with 463 excess fee cases filed. At InSight, we understand the critical importance of mitigating fiduciary risk and ensuring comprehensive documentation of fiduciary processes for 401(k) plans. Our Corporate Plan Manager Services are designed to help plan sponsors navigate this challenging environment, ensuring that their fiduciary duties are met with the highest standards of care and diligence. Litigation Trends and Challenges In 2023, the legal landscape was dominated by significant activity in pending cases, including a record 42 settlements and a surge in motions to dismiss, summary judgments, and appellate rulings. Despite a decrease in new filings, the overall volume of excess fee cases remains high, particularly targeting large retirement plans with assets over $1 billion. The most common claims involve alleged excessive recordkeeping fees and investment underperformance. Notably, legacy law firms continue to pursue large plans based on purported excessive fees, often using data from Form 5500 filings. However, newer plaintiff firms are introducing novel theories of fiduciary liability, including improper indirect compensation to recordkeepers and imprudent use of plan forfeitures. InSight’s Proactive Approach At InSight, our Corporate Plan Manager Services are designed to address these evolving challenges head-on. We provide comprehensive support to ensure that 401(k) plans are managed in accordance with fiduciary best practices, thereby mitigating the risk of litigation. 1. Thorough Documentation and Compliance: We help plan sponsors meticulously document their fiduciary processes, including fee disclosures, investment selection, and monitoring procedures. This ensures that all actions taken are well-documented and compliant with ERISA requirements. 2. Fee Benchmarking and Negotiation: Our team conducts rigorous benchmarking of plan fees against industry standards and negotiates with service providers to secure the most favorable terms. This proactive approach helps demonstrate that plan fiduciaries are leveraging the size of their plans to obtain competitive fees. 3. Investment Performance Monitoring: We provide ongoing monitoring and analysis of plan investments, ensuring that they meet performance expectations and align with the plan’s objectives. This includes regular reviews and adjustments to the investment lineup as needed. 4. Risk Assessment and Mitigation: Our services include comprehensive risk assessments to identify potential areas of fiduciary liability. We work with plan sponsors to implement strategies that mitigate these risks, including the adoption of prudent processes for selecting and monitoring plan investments and service providers. Staying Ahead of Litigation Trends The trends in 2023 show a clear focus on large plans and evolving theories of liability. InSight’s Corporate Plan Manager Services are specifically tailored to help plan sponsors stay ahead of these trends by implementing robust fiduciary practices and continuously adapting to new legal challenges. By partnering with InSight, plan sponsors can be confident that their 401(k) plans are managed with the highest standards of fiduciary excellence. Our proactive approach not only helps mitigate the risk of litigation but also ensures that plan participants receive the best possible outcomes from their retirement plans. As the frequency of ERISA litigation remains high, it is crucial for plan sponsors to have a trusted partner in managing their fiduciary responsibilities. InSight’s Corporate Plan Manager Services provide the expertise and support needed to navigate this complex landscape, ensuring that 401(k) plans are compliant, well-documented, and positioned to withstand scrutiny. By leveraging our services, plan sponsors can focus on their core business objectives while we take care of the intricate details of fiduciary management. Together, we can achieve the goal of providing secure and effective retirement plans for employees, backed by a solid foundation of fiduciary excellence.

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Tax Free Rental Income 
Kevin Taylor

How To: Get Tax Free Rental Income 

Let’s paint a picture of what that world might look like if you could successfully put a rental property into a Roth account. With a Roth, growth in the value of the assets is tax free and the income that comes from your rental is tax free. You may have heard of people buying real estate in self-directed IRAs, and while the income and growth is tax deferred, when withdrawn, creates ordinary income. So, imagine if you could get all that growth tax free in a home in Colorado, while also receiving tax free income after the age of 59.5 every month. Seems like a win win to us and our clients love it.  There are four major benefits to this strategy. First, implementing this strategy can lower your effective tax rate by reducing the withdrawal rates from your tax deferred accounts. Since the first dollars you get in retirement can be from your Roth distributions, this will lower your effective tax rate on other incomes like capital gains on taxable assets, distributions from Traditional IRAs, tax deferred annuities, Pensions, 403(b)s, or 401(k). The second additional effect of this strategy is that Roth’s don’t require that you take a Required Minimum Distribution. So there is no need to liquidate the asset at any point during retirement unless you want to. It’s a near permanent way to get rental income throughout the duration of your retirement.  The third less used benefit, is that some income from the property can also be used to buy other income generating assets to help diversify the stream of income and supply you with less income risk in your non-working years.  The fourth benefit is when you pass the assets onto your heirs.  With the Tax Cuts and Jobs Act, inherited IRAs lost a key feature which previously enabled beneficiaries to prolong taking distributions from inherited IRAs over their own life expectancy or the life expectancy of the deceased, and requiring them to take it out over 10 years. This forces beneficiaries that may have an unfavorable tax situation into an even more unfavorable tax liability as they’re forced to take on ordinary income from these accounts. However, with Roth accounts, although there are Required Minimum Distributions for inheriting a Roth, the distributions are tax free which is a huge benefit to the beneficiaries. There are some exceptions to this rule but generally speaking, inheriting Roth Accounts for most people is better than inheriting IRAs.  We think this is a near permanent endowment of tax free income, with the ability to rise with inflation, through the entirety of your retirement. I have a perfect storm of desired qualities for most investors. There are however, a few challenges to accomplishing this task, and it depends on the amount of money available in your Roth currently. Because of income and contribution limits to Roth’s most people will not amass the required liquidity in their Roth to be able to make the down payment on a piece of real estate, fewer still will have the assets to be able to buy the property outright.  There are four techniques that we employ this strategy which you should become familiar with.  Backdoor Roth Contributions, or a Mega Backdoor Roth Self Directed Roth’s Asset Lending in Self Directed Roth’s Non traded REIT’s Backdoor Roth Contributions, or a Mega Backdoor Roth jumpstart Tax Free Rental Income  Getting the requisite assets into a Roth can be a bit of a trick. The income limits keep most affluent earners from being able to contribute at all. Even if your income makes you eligible for such a contribution, the annual limit of $6,000 for those younger than 50, means saving and investing for a lifetime into your Roth would scarcely get to an amount meaningful enough to make a down payment or to buy a meaningful property outright (depending on your local market). So getting the investment assets into the account becomes job one. A few ways to jump start this process is to convert assets from your IRA. Generally investors have far more money in Traditional IRA’s and 401k’s then they do in their Roth. Now a quick off ramp to the “tax free rental income” plan would be simply tax deferred rental income by using the assets in the qualified accounts. But for those who want the full boar strategy they need to get ambitious about getting money into you Roth.  We discuss details of the Backdoor Roth Contributions at length here, and the Mega Backdoor Roth here. Both of these methods can provide ample accelerant to getting money out of the qualified account and into the Roth account expeditiously.  There is also a simple conversion of assets for those who are willing to pay taxes currently, to avoid them in the long run. You should work with your CFP® professional or CPA to determine if this tax strategy is the right fit for you.  Self Directed Roth’s are key to Tax Free Rental Income  Most investors are familiar with IRA’s and Roth’s and many are familiar with Self directed accounts (SDIRA). You can see the definition here if you are not yet familiar with SDRIA’s and Roths. We use these specialty account types to properly custodian the assets and make sure they stay compliant for use as an essential part of the “tax free rental income” strategy. These account types delimit the investment types that can be held and make owning a single real estate property (as opposed to traded REIT’s) possible. They provide the right type of tax treatment for assets we like to use. There are however, several compliance and custodian issues that you should be aware of to prevent the asset from being declassified as either an IRA or Roth asset. Oversight of these rules and administration of the accounts is something best overseen by a CFP® professional who understands your situation and can help you stay compliant at all times.  Asset Borrowing in Self Directed Roth’s There are

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