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The Fiduciary’s Role in Real Estate: Calculating ROI for Smarter Investments

Welcome to the Fall edition of Towerpoint Wealth’s Fiduciary Group’s Newsletter – Fiduciary Focus

As fiduciaries, we recognize the importance of safeguarding our clients’ assets. Our goal is to equip you with the insights and tools you need to navigate the complexities of Trust Administration, Special Needs Planning, Conservatorships, and Estate Administrations with proper expertise and care.

The Fiduciary Group at Towerpoint Wealth leverages a combined 27 years of experience to advise professional private fiduciaries, third-party trustees, conservators, administrators, and family members through their fiduciary responsibilities.

The Fiduciary to the Fiduciaries | Meet The Team

Most importantly, as an independent Registered Investment Advisory firm, we are bound by the same fiduciary standards as the fiduciaries we work with. We are committed to providing you with guidance that helps you fulfill your duties per the binding guidelines of the Uniform Prudent Investor Act and California State Probate Code. 

Subscribe today to the Fiduciary Focus quarterly newsletter to stay informed and enhance your financial management knowledge. Our friendly and informative newsletter provides financial tips, updates on upcoming events, and recent releases. Delivered directly to your inbox, it’s a simple way to stay up to date with the latest insights and tools to support your fiduciary duties.

How Fiduciaries Can Help Clients Evaluate Rental Property Profitability

One of our key responsibilities as conscientious fiduciaries is ensuring that we are making informed decisions for our clients that align with their long-term financial goals. 

Real estate, particularly rental properties, is increasingly seen as a lucrative wealth-building strategy; however, with opportunity comes complexity, so it’s the fiduciary’s role to navigate the complexities of determining whether rental property investments are truly worthwhile on behalf of their clients.

In this newsletter, we’ll discuss how to calculate the return on investment rental property (ROI and ROE) for clients’ rental properties and provide a Rental Property Analysis Calculator that you can use to evaluate a property’s cash flow characteristics.

Understanding the Basics of Returns on Rental Properties

For fiduciaries managing rental properties on behalf of their clients, it’s crucial to go beyond just evaluating rental income. When looking at how to calculate the return on investment rental property, a true analysis of the property’s return requires looking at both Return on Investment (ROI) and Return on Equity (ROE).

ROI measures the profitability of the initial investment by evaluating how effectively the rental income and expenses translate into cash flow. This is often calculated based on the amount of money initially invested, such as the down payment and closing costs.

positive returns on investment property for fiduciaries calculating ROI in real estate

However, as the property appreciates over time and the mortgage is paid down, the client’s equity in the property grows. This is where Return on Equity (ROE) becomes a much more important metric to assess. While the ROI might remain stable, the ROE could diminish over time if the property’s cash flow isn’t growing at the same rate as the equity.

Fiduciaries should regularly evaluate the ROE to determine whether the client’s increased equity is being effectively leveraged, or if it may make sense to invest that equity elsewhere. 

A property with high equity but low cash flow might not provide the best long-term returns, especially compared to other investment opportunities like stocks or bonds that don’t require active management. By keeping an eye on both ROI and ROE, fiduciaries can make informed decisions about whether to continue holding the property or reinvest the equity elsewhere for better returns.

Factors that Influence Rental Property Returns

Several variables affect the returns of a rental property, and fiduciaries are well-positioned to make these decisions for their clients. These include:

  • Initial Investment Costs: These consist of the property’s purchase price, closing costs, renovation expenses, and any other fees required to get the property rental-ready.
  • Ongoing Expenses: Maintenance, repairs, property management fees, insurance, and property taxes are all factors that can eat into profits if not accounted for correctly.
  • Income Generation: Fiduciaries need to assess rent received, occupancy rates, and the potential for rental income growth on behalf of their clients. This income must also be offset by the time costs associated with managing the property. Vacancy periods, rental market fluctuations, and tenant turnover will also impact income.
  • Market Conditions: The overall real estate market and economic conditions influence the appreciation of the property and its future resale value. 
  • Time Investment: The time cost associated with managing rental properties. Unlike passive investments such as stocks or bonds, which require minimal time and oversight, rental properties often come with an active management requirement. For professional fiduciaries billing hourly, this time can add up and impact the overall return for the client. 

property returns and ROI for fiduciary real estate decisions

Working through these components ensures that decisions are made based on solid data rather than optimism or market trends alone. As fiduciaries, analyzing all of these factors enables us to fulfill our duty of care and make sound, long-term investments.

Why Accurate Rental Property Analysis is Key to Long-Term Success

One of the most significant challenges in investing in real estate is avoiding the temptation to base decisions on short-term market hype or incomplete data. As fiduciaries, we have not only the ability but the responsibility to ensure that our analysis is accurate and aligned with our client’s overall financial objectives.

By performing a thorough rental property analysis, professional fiduciaries can avoid costly mistakes and make informed decisions for their clients. 

Proper analysis helps fiduciaries determine whether the property will enhance or hinder their clients’ wealth-building initiatives. Fiduciaries play a critical role in forecasting the impact of real estate investments on overall retirement, tax planning, and overall portfolio diversification goals.

Need help analyzing a property’s profitability? Check out our Rental Property Calculator! Just enter the details of the real estate, and our calculator will help you qualify your client’s property as a real estate investment.

2023-2024 Tax Season Tip

2023 2024 Tax Season Tips

Leverage a 1031 Exchange to Defer Capital Gains Taxes

When fiduciaries are considering selling an investment property for a client, one of the most effective strategies for deferring capital gains taxes is utilizing a 1031 exchange

Named after Section 1031 of the Internal Revenue Code, this provision allows investors to defer paying capital gains taxes if they reinvest the proceeds from the sale of one investment property into another like-kind property.

1031 Exchange timeline

The key benefit of a 1031 exchange is that it preserves your clients’ capital, allowing them to continue growing their real estate portfolio without an immediate tax hit. By deferring taxes, clients can potentially reinvest more capital into a higher-value property, thereby increasing their potential for future cash flow and appreciation.

It’s important to note that the IRS has strict rules regarding 1031 exchanges. 

It is important to note, however, that there is a 1031 exchange timeline that must be followed for investors to qualify. 

To qualify, the replacement property must be identified within 45 days of selling the original property, and the transaction must be completed within 180 days. Additionally, the replacement property must be of equal or greater value to fully defer capital gains taxes.

1031 Exchange Timeline

1031 exchange timeline

By advising clients on the benefits and requirements of a 1031 exchange, including the 1031 exchange timeline, fiduciaries can help them manage their tax liability while continuing to build long-term wealth through real estate investments.

Maximize Your Investment: Try Our Rental Property Analysis Calculator Today

Discover the true potential of your real estate investments by using our comprehensive Rental Property Analysis Calculator. By clicking here, you can easily assess the profitability of your rental property and gain valuable insights into your financial strategy. This tool helps you evaluate crucial factors such as cash flow, ROI, and other metrics to make informed decisions and maximize your investment potential. Take the guesswork out of your financial planning and unlock smarter, data-driven decisions for your rental property portfolio today.

Focus on this

Benjamin Franklin Best Interest

Managing fiduciary responsibilities can be complex, but you don’t have to do it alone. Schedule a consultation now to learn how our fiduciary team can help you streamline your processes, stay compliant, and deliver exceptional results for your clients.

Looking for more?

Real Estate Investing From Properties to Profits

Announcements & Upcoming Events

  • November 7 – Thank you to those of you who attended Towerpoint Wealth’s open house event yesterday celebrating our new office space, it was a pleasure having you there!
  • November 18-20th – Megan and Jonathan will be attending the Fox Rothschild Fiduciary Attorney Summit and hope to see you there!

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Considering the Effects of Inflation and Deflation 08.02.2024

Fiduciary Focus Newsletter Spring

 

Welcome to the second edition of Towerpoint Wealth’s Fiduciary Group’s Newsletter – Fiduciary Focus

As we are also held to a fiduciary standard, we understand the weight of our responsibility to safeguard your clients’ assets. We are here to provide you with the insights, strategies, and tools you need to excel in this vital role.

Our Fiduciary Group combines 27 years of experience in guiding professional private fiduciaries, third-party trustees, conservators, administrators, and family members through their fiduciary responsibilities. 

We are dedicated to providing the tools and resources to help you navigate the complexities of Trust Administration, Special Needs Planning, Conservatorships, and Estate Administrations with proper expertise and care.

As an independent Registered Investment Advisory firm, we are here to help guide you through your duties conforming with the binding guidelines of the Uniform Prudent Investor Act and California State Probate Code – bound by the same fiduciary standard as the fiduciaries we work with. 


Your Fiduciary Duty: Considering the Effects of Inflation and Deflation

As vigilant fiduciaries, your duty to act in the best interests of your clients is governed by the principles outlined in the Uniform Prudent Investor Act (UPIA) and the California State Probate Code. Today, we’re going to be zooming in on California Probate Code 16047(c)(2). 

California Probate Code 16047(c)(2) directs fiduciaries to consider the impact of inflation and deflation when investing and managing trust assets. Understanding – and mitigating – these potent economic forces is essential to both preserving and enhancing the value of our clients’ assets.

While we all have the responsibility for ourselves or our clients to consider these factors when making investment decisions, professional fiduciaries have the legal obligation to be prudent in their decisions to exercise reasonable care, skill, and caution. 

By understanding the effects of inflation, fiduciaries can help safeguard their clients’ assets from inflation and mitigate the impact of eroding purchasing power and diminishing real value returns. 

 

Effect of Inflation

 

It’s also important to consider inflation as it relates to income needs and long-term planning when making decisions in a fiduciary capacity for clients. Beneficiaries often rely on income from the trust or estate to cover their living expenses. If inflation rises, the cost of living increases – therefore, a higher income is needed to maintain the same standard of living under these increased prices.

Inflation also affects long-term planning as, when the cost of living increases, fiduciaries must ensure that income streams grow enough to maintain purchasing power over time. This may involve incorporating investments that are expected to outpace inflation or using investment options that include inflation protection.

Conversely, deflation can increase the real value of investments but decrease the asset and investment values, slowing asset growth. As far as debt is concerned, deflation increases the real value of debt, making it more expensive to repay in terms of purchasing power. 

As fiduciaries, we must remain vigilant and proactive in adjusting investment strategies to safeguard against these shifts.

1. Avoid allocating excessive cash balances in the bank or low-interest-bearing accounts for an extended period of time. Fiduciary clients with large cash holdings risk losing real value on their assets, which could otherwise be invested in options that provide growth and a better hedge against inflation. To fulfill their fiduciary duty, advisors must balance liquidity needs with growth objectives.

2. Diversify trust assets. Diversification is a fundamental strategy for managing the risks associated with both inflation and deflation. By spreading investments across a variety of asset classes, fiduciaries can balance the portfolio’s exposure to different economic conditions.

 


Finance Pie Graph Effects of Deflation

 

3. Regularly Review and Adjust the Investment Strategy. As economic conditions change over time, like in an inflationary or deflationary period, it’s imperative to actively monitor and adjust investment allocations. This includes conducting periodic reviews to ensure the portfolio aligns with client objectives, rebalancing the portfolio as necessary, and remaining informed on economic factors and policies that may impact the portfolio’s performance.

Working with a financial advisor held to a fiduciary standard, like our advisors at Towerpoint Wealth, can help you as a professional fiduciary manage your fiduciary responsibilities. 

Partnering with a financial advisor acting in a fiduciary capacity can help you offload some of the liability of managing your clients’ financial assets.

Adhering to the California State Probate Code 16047(c)(2) requires a diligent, informed approach to managing inflation and deflation risks. By doing so, we uphold our fiduciary duty by protecting our clients’ interests and optimizing their investment returns in changing economic environments.

 


2023-2024 Tax Season Tip

Fight Inflation on Large Cash Balances in a Tax-Efficient Manner

When working with clients in a fiduciary capacity to mitigate the effects of inflation on their portfolios, it’s vital to also consider the tax implications of investment decisions. 

Investing large cash balances in tax-efficient alternatives such as Treasury Bills (T-Bills), Municipal Bonds, TIPS, and Floating Rate Instruments can help you balance the preservation of capital with tax efficiency.

1. Treasury Bills (T-Bills): T-Bills are a tax-efficient option for large cash balances as they are exempt from state and local taxes, providing a safe place to park cash with competitive returns while preserving capital.

2. Municipal Bonds (Muni Bonds): Muni Bonds offer tax-free interest at the federal (and sometimes state and local) levels, making them an attractive choice for high-income clients looking to shield income from taxes while still benefiting from inflation protection

3. Treasury Inflation-Protected Securities (TIPS): TIPS adjust their principal with inflation, preserving purchasing power. This makes them a direct hedge against inflation. Although their interest is taxable at the federal level, it is exempt from state and local taxes, enhancing their overall tax efficiency.

 

Treasury Inflation Protected Securities Tips

4. Floating Rate Instruments: Floating Rate Securities provide interest that adjusts with market rates, helping to combat inflation. They offer tax efficiency by generating interest income that can be more predictable in changing economic conditions, minimizing tax impacts compared to fixed-rate securities.


Focus on This

 

Effects of Inflation Deflation Quote

 


Announcement

We are thrilled to announce our relocation to a new, larger office within our current building! We’ve moved up 10 floors and are now located on the 20th floor of the BMO Building (formerly Bank of The West) at 500 Capitol Mall, Suite 2060.

Towerpoint Wealth Moved To 20th Floor


This move is a result of our sustained growth and ongoing commitment to providing exceptional wealth management services, planning, and counsel to each of our clients.

We invite you to visit us soon and keep an eye out for an upcoming open house invitation later this fall!


If you need help reviewing your clients’ portfolios for tax savings opportunities or you need assistance in implementing any of these strategies – we are here to help. Reach out to Jonathan LaTurner or Megan Miller at the Towerpoint Wealth Fiduciary Group.

 Connect with Towerpoint Wealth, your Sacramento Financial Advisor, on any of these platforms, and send us a message to share your preferred charity. We will happily donate $10 to it!

Click HERE to follow TPW on LinkedIn
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Your Essential Newsletter for Trust Administration and More 04.10.2024

Fiduciary Focus Newsletter Spring

Introducing Fiduciary Focus, Towerpoint Wealth’s new newsletter for the fiduciary community

Welcome to the first edition of Towerpoint Wealth’s Fiduciary Group’s Newsletter – Fiduciary Focus. Our growing team is excited to share our brand new newsletter and insightful information with the fiduciary community.

At Towerpoint Wealth, our Fiduciary Group brings together 27 years of collective experience in guiding Professional Private Fiduciaries, Third-party Trustees, Conservators, Administrators, and family members through the intricate aspects of Trust Administration, Special Needs Planning, Conservatorships, and Estate Administrations. We are dedicated to helping you meet your fiduciary responsibilities with precision, adhering to the stringent guidelines of the Uniform Prudent Investor Act and California State Probate Code.

And most important, as an independent Registered Investment Advisory firm, we’re bound by the same fiduciary standard as the fiduciaries we work with. Our dedication is to you.

Role Of Trustee 2024 Fiduciary Duties


Fiduciary Finance 101 Tip

The Foundation of Finance – A Fiduciary’s Guide to Diversification

A Fiduciary’s Guide to Diversification

In the complex world of finance, where markets fluctuate and economic landscapes shift, one principle stands as a beacon of stability: diversification. For professional fiduciaries tasked with safeguarding their clients’ financial futures, understanding and implementing diversification is not only paramount, but a requirement outlined in the California Probate Code and Uniform Prudent Investor Act.

“Section 16048. In making and implementing investment decisions, the trustee has a duty to diversify the investments of the trust unless, under the circumstances, it is prudent not to do so.”

Diversification is more than just a buzzword; it’s a fundamental strategy that spreads investment risk across a range of assets, mitigating the impact of volatility in any single investment. By diversifying, fiduciaries help shield their clients from the full brunt of market downturns while positioning them to benefit from potential upswings.

Here are three key reasons why diversification is a cornerstone of financial success:

1. Risk Management: Diversification is the bedrock of effective risk management. By spreading investments across various asset classes such as stocks, bonds, real estate, and commodities, fiduciaries can reduce the overall risk exposure of their clients’ portfolios. When one asset class underperforms, others may hold steady or even thrive, helping to offset losses.

2. Smoothing Out Volatility: Markets are inherently volatile, subject to fluctuations driven by economic, political, and global events. Diversification helps smooth out this volatility by ensuring that a portfolio isn’t overly reliant on the performance of any single investment or sector. Instead, it provides a buffer against market turbulence, fostering stability and preserving wealth over the long term.

3. Maximizing Returns: While diversification is primarily about risk management, it also has the potential to enhance returns. By spreading investments across different asset classes with varying risk-return profiles, fiduciaries can optimize the risk-return tradeoff within their clients’ portfolios. This balanced approach aims to capture upside potential while minimizing downside risk, ultimately working towards the achievement of financial goals.

As fiduciaries, it’s our duty to act in the best interests of our clients, and diversification is a powerful tool in fulfilling that obligation. By incorporating diversification into investment strategies, fiduciaries can help their clients navigate uncertain markets with confidence, laying the groundwork for long-term financial security and prosperity.


2023-2024 Tax Season Tip

Have your clients made their 2023 Traditional or Roth IRA contributions yet? If not, it’s not too late!

The deadline for both 2023 Traditional and Roth IRA contributions is April 15, 2024. Before contributing, ensure your client’s income doesn’t exceed the following income limitations:

2023 2024 Tax Season Tips

What’s the difference between a Traditional vs. Roth IRA?

  • Traditional IRA contributions are made pre-tax or in other words, are tax-deductible. The income and capital gains grow tax deferred until a client withdraws the funds. Withdrawals are taxed at the client’s ordinary income tax rates at time of withdrawal.
  • Roth IRA contributions are made post-tax or not tax-deductible. BUT, not only do Roth investments grow tax-free, but they are TAX FREE upon withdrawal making Roth IRAs a powerful retirement tool.
Secure Client Retirement 2023


Focus on this

Fiduciary Focus Newsletter Towerpoint Wealth

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to contact us at any time, or call or email us at fiduciary@towerpointwealth.com with any questions, concerns, or needs you may have.

We enjoy social media, and are actively growing our online community!

 Connect with Towerpoint Wealth, your Sacramento Financial Advisor, on any of these platforms, and send us a message to share your preferred charity. We will happily donate $10 to it!

Click HERE to follow TPW on LinkedIn
Click HERE to follow TPW on YouTube
Click HERE to follow TPW on Facebook
Click HERE to follow TPW on Instagram
Click HERE to follow TPW on X
Click HERE to follow TPW Podcast : A Wealth of Knowledge