In a general sense, alternative investments, also known as hard assets or Real Asset investments, cannot be directly classified as any form of stocks, bonds or cash.
Alternative or Real Asset Investments may include, energy, timber, infrastructure, real estate property, commodities and precious metals. The returns that they may typically generate usually bear a low correlation to the mainstream markets and they may also often come with very high fees and require a substantial initial investment. Many alternative investments may also offer substantial tax advantages that cannot be easily duplicated elsewhere. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity.
A list of some of the major assets that are usually included in this category includes:
· Real Estate Properties ( retail, industrial, office, apartments)
· Natural Gas & Oil Drilling Programs,
· Natural Gas & Oil Royalty Interest Investments,
· Land, Timberland, Agricultural Programs
· Coal, Gas, Energy Programs
· Gold and Precious Metals
Why do investors choose ALTERNATIVE OR REAL ASSET investments?
*Return on Investment – Allocations to alternative or real assets gives the investor a potential to enhance the return of one’s portfolio. Over the past decade, direct real asset investment returns have generally exceeded traditional investments as stocks or bonds. Alternative investments have provided attractive returns, when, during times of inflation and market fluctuation, stocks and bonds may have
performed poorly.
*Inflationary concerns – As alternative investments may provide a measure of protection against inflation.
*Diversification—With portfolio diversification, for instance, the particular program or alternative investment potentially may produce returns based upon the performance of the real estate or particular product and NOT the volatility of the publically traded market portfolio The individual investment will perform based upon the management and individual program.
*Tax consequences – Various alternative and real asset programs may offer relief from taxable gains, while offering depreciation on the real asset , and/or appreciation on the particular alternative investment.
TYPES OF OWNERSHIP FOR ALTERNATIVE INVESTMENTS
THE “DST” … (Delaware Statutory Trust)
A “DST” is a separate legal entity of ownership formed as a trust under Delaware law. If property structured, the DST will be classified as a grantor trust for federal income tax purposes and, as a result, the purchaser of a beneficial interest in the trust will acquire an undivided interest in the asset(s) held by the DST. An investor can use a DST as a replacement property in a 1031 tax deferred exchange.
A DST is structured so that each beneficiary ( investor) owns a beneficial interest in the trust . The managing Trustee of the DST is either the Sponsor or an affiliate of the Sponsor.
The DST holds title of 100% of the interest in the property.
Tax reporting for a DST is done on a Schedule E utilizing property operating information provided by the Sponsor.
THE IRS ISSUED THE REVENUE RULING 2004-86 that set forth parameters a DST must meet in order to be viewed as a grantor trust and qualify for a viable tax deferring vehicle. If the DST is
Structured responsibility, the parameters do not prohibit a successful business plan for a property.
DST products may be any of the following real estate products: office, retail, industrial, apartments, medical, senior retirement and NNN/or net lease properties.
Past performance is not indicative of future results. Diversification does not guarantee positive future results. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity.
