2025 Strategies for Consideration

Kick­ing off invest­ment ideas for 2025 may involve tra­di­tion­al and non-tra­di­tion­al strate­gies.  What is on your list of poten­tial invest­ment moves for 2025? 

Jan­u­ary 9, 2025

By Al DiNi­co­la, AIF®
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC Mem­ber of FINRA/SIPC

Typ­i­cal­ly, at this time of year we may be iden­ti­fy­ing res­o­lu­tions in all aspects of our lives. Many investors are stand­ing by and antic­i­pate changes with a new admin­is­tra­tion about to be installed. Nor­mal­ly with all the hus­tle and bus­tle of the end of the year, the hol­i­day sea­son and nego­ti­at­ing last minute tax posi­tion­ing for cer­tain invest­ments 2025 invest­ment plan­ning typ­i­cal­ly rolls over into the new year. Over the years we have seen many investors inves­ti­gate or at least think about mak­ing moves with their port­fo­lios. Some may con­sid­er non-cor­re­lat­ed posi­tions. Investors who own real estate and oth­er appre­ci­at­ed assets should con­sid­er their alter­na­tives. Under­stand­ing the poten­tial options is always worth a dis­cus­sion.

Pri­ma­ry Res­i­dences

Invest­ment moves may include the sell­ing of your pri­ma­ry res­i­dence and mov­ing into a small­er res­i­dence typ­i­cal­ly known as down­siz­ing. This may be in your local area or poten­tial­ly miles away. Warmer cli­mates may prompt moves as some areas of the coun­try are expe­ri­enc­ing the first artic blasts. We’ve seen a migra­tion from the north­east and Mid­west to what’s known as the smile states which stretch from Texas across the south­east and into the Car­oli­nas. We have specif­i­cal­ly assist­ed home­own­ers who have a poten­tial large cap­i­tal gain in their pri­ma­ry res­i­dence. This is espe­cial­ly impor­tant when look­ing at how to defer tax­es on cap­i­tal gains above the $500,000 lim­it per cou­ple exemp­tion. There are cur­rent and poten­tial­ly future advan­tages of com­bin­ing the sale of a pri­vate res­i­dence or per­son­al res­i­dence (via Sec­tion 121) with a tax defer­ral strat­e­gy in Oppor­tu­ni­ty Zones (OZs).

Invest­ment and rental Prop­er­ties.

Investors who own rental prop­er­ties, espe­cial­ly those involved with active man­age­ment, may be seek­ing to move into a more pas­sive involve­ment with their rental prop­er­ties. We are espe­cial­ly skilled at assist­ing these investors who may ben­e­fit through sell­ing their cur­rent invest­ment prop­er­ty uti­liz­ing a sec­tion 1031 tax deferred exchange and mov­ing into a Delaware statu­to­ry trust (DST) offer­ing. The DST as it is known, pro­vides for poten­tial diver­si­fi­ca­tion via change of asset class, mul­ti­ple acqui­si­tions or replace­ment prop­er­ties, as well as geo­graph­ic loca­tion when sell­ing a sin­gle prop­er­ty that they’ve held for invest­ment. DSTs that have lever­age by design pro­vide non-recourse debt to §1031 investors who are required to replace debt in a 1031 exchange.  We also have investors who have sold real estate that has a high enough basis enabling mov­ing the cap­i­tal gains into an Oppor­tu­ni­ty Zone aka OZ (rather than using the §1031 exchange) and retain­ing the basis tax free.

Sell­ing the Busi­ness.

Investors who own a busi­ness may be look­ing at sell­ing the busi­ness uti­liz­ing a com­bined tax defer­ral strat­e­gy that may include a §1031 exchange for the real estate the busi­ness may own as well as an oppor­tu­ni­ty zone for the busi­ness cap­i­tal gains. DST qual­i­fied as a 1031 replace­ment and may pro­vide a pas­sive invest­ment.

The sale of the busi­ness may start with the busi­ness own­er sell­ing his busi­ness either to a poten­tial sec­ond gen­er­a­tion own­er (aka fam­i­ly mem­ber) or offer­ing his busi­ness for sale to an unre­lat­ed par­ty. Recent stud­ies have revealed that sell­ing or trans­fer­ring the busi­ness from the first gen­er­a­tion to the sec­ond gen­er­a­tion is suc­cess­ful about 35% of the time. Sec­ond gen­er­a­tion the third gen­er­a­tion drops down to 12%. If you are a busi­ness own­er and have the abil­i­ty to con­tin­ue your lega­cy of busi­ness own­er­ship by offer­ing to sell or trans­fer­ring the own­er­ship to your off­springs or chil­dren, con­grat­u­la­tions. There are steps to review in order to ensure the biggest poten­tial return to the investor as pos­si­ble and at the same time pro­vid­ing a spring­board for your offer­ing for your off­springs.

Asset repo­si­tion­ing

They are also investors look­ing at sell­ing appre­cia­ble assets whether it would be col­lectibles, antiques, watch­es, stocks, art­work, etc. where are they would expe­ri­ence a size­able gain the siz­able gain may ben­e­fit through invest­ing that gain into an oppor­tu­ni­ty zone. This enables the investor to retain to what­ev­er basis they own in the asset and only invest the cap­i­tal gains into an oppor­tu­ni­ty zone. We have many arti­cles and insights in how to best uti­lize the oppor­tu­ni­ty zone strat­e­gy. Investors with stock mar­ket gains may shift to anoth­er strat­e­gy and take advan­tage of the Oppor­tu­ni­ty Zone strat­e­gy.

IRA to ROTH Con­ver­sion (maybe a new idea)

Investors seek­ing to move from a tra­di­tion­al RIA may seek to exe­cute a ROTH con­ver­sion strat­e­gy. This strat­e­gy needs thor­ough plan­ning and typ­i­cal­ly takes place over a peri­od of time.  

Here is a hypo­thet­i­cal sit­u­a­tion. An investor has mon­ey in reg­u­lar IRA, or 401(k) accounts and they will pay reg­u­lar income tax when they take mon­ey out of their accounts after they retire. They don’t pay tax­es when tak­ing mon­ey out of a Roth IRA account because the mon­ey in a Roth IRA con­sists of after-tax dol­lars.

There are a num­ber of pri­vate invest­ments, par­tic­u­lar­ly in com­mer­cial and mul­ti-fam­i­ly real estate, that offer an IRS-approved dis­count­ed val­ue when con­vert­ing from a reg­u­lar into a Roth IRA. Say, towards the end of one year, a client invests $100,000 from a reg­u­lar IRA in an invest­ment prop­er­ty in the devel­op­men­tal stage. At the end of the year, an inde­pen­dent appraisal will be done on the cur­rent val­ue of the invest­ment.

Then, ear­ly the fol­low­ing year, the cus­to­di­an of that client’s reg­u­lar IRA is required to tell them the fair mar­ket val­ue of their IRA on the last day of the pre­vi­ous year. The devel­op­ment they invest­ed in, how­ev­er, is now just raw land, sticks and bricks. The build­ing or build­ings haven’t been built and there are no ten­ants.

As a result, the cur­rent fair-mar­ket val­ue of their invest­ment may be as low as 50 per­cent of the orig­i­nal invest­ment. In plain Eng­lish: the client’s $100,000 invest­ment is now worth$50,000. They can con­vert the invest­ment from a reg­u­lar IRA to a Roth IRA and now pay tax­es on a val­u­a­tion of $50,000 rather than $100,000.

Fast for­ward four or five years. The prop­er­ty has now been devel­oped and the build­ing has been sold off. Your client’s orig­i­nal $100,000 invest­ment could now poten­tial­ly be worth $150,000 to $200,000 – all of which, being in a Roth IRA, is now tax free. We will pro­vide future arti­cles on this strat­e­gy.

If you would like to review these and oth­er alter­ative real estate invest­ments includ­ing 1031, 1033, DSTs, OZs, and IRA to Roth con­ver­sion please con­tact us.

Investor Dis­clo­sure:

DST’s (Delaware Statu­to­ry Trusts) are for accred­it­ed investors only.  Please us for addi­tion­al details on how a DST may be a solu­tion to your §1031 and §1033 Exchange and com­pli­ment your finan­cial objec­tives. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@namcoa.com.

DST News would like to acknowl­edge the con­tri­bu­tion of con­tent by Four Springs Cap­i­tal, Madi­son Cap­i­tal Group and Cap­i­tal Square to the arti­cle.  These com­pa­nies are Delaware Statu­to­ry Trust (DSTs) spon­sors that pro­vide replace­ment solu­tions for finan­cial advi­sors to con­sid­er for §1031 and §1033 exchanges.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate, or any invest­ment, in any form, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   NAMCOA, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 8215 SW Tualatin ‑Sher­wood Rd, Suite 200 Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.