One of the most unique and powerful aspects of investing with Timberland Partners is the ability to capitalize on the tax-advantaged strategies afforded to investment real estate.
Most alternative private funds or direct deals have a definitive term whereby the sponsor is required to liquidate the partnership following the execution of their strategy, most often on a 3-7-year timeline. Doing so may boost the internal rate of return (IRR) of the deal — mostly to the benefit of the sponsor who earns an upside in the promote — but the investors are dealt a heavy tax burden in the form of a capital gains tax that could be avoided.
Timberland Partners exists to help people invest in real estate, and that means taking full advantage of tax-favorable strategies when appropriate.
The two main mechanisms available are 1) a cash-out-refinance, which provides a tax-deferred, debt-funded equity distribution to the partners, allowing them to capture equity appreciation in their investment while deferring capital gains taxes, and 2) participation in 1031-tax deferred exchange. By doing so, the sponsor may roll the equity proceeds from the sale into a “like-kind” investment (another property) of equal or greater value and defer capital gains tax on the previous sale. While full tax consequences sometimes reduce available net sales proceeds available for reinvestment by as much as 50 percent, a successful exchange is a powerful tool to maximize the long-term growth and income earning potential of a real estate investment.
October was a record month for Timberland Partners, with a total of five property sales, the oldest of which was Timberland Springs.
This property is located in Des Moines, Iowa, and was purchased in September 2000, over 20 years ago. With its sale complete earlier this month, the partnership has produced an IRR, or average annual return to partners, of 11.07 percent per year for 20 years. Following the sale, every investor in the partnership elected to participate in the exchange and roll their share of the proceeds into a 1031-exchange. On October 29, 2020, the partnership transferred the equity proceeds into a tenant-in-common partnership with Fund VII for a 23.48 percent interest in the Preserve on Maine, in Rochester, MN. This 2017-built, class A property in the growing Rochester market should provide for another long, successful investment of the Timberland Springs partnership.