By Vince DelaRosa, August 25, 2023
A paradigm shift is needed. The marriage of new insights and innovative regulation could offer a fresh lens on real estate investing. Through the synthesis of new tribal pursuits and traditional models, we can harmonize innovation, casting a visionary spotlight on the future contours of real estate investing.
The real estate landscape is ever evolving, or at least it should be. As we were looking at some opportunities in the industry, we imagined a much better approach. Example, why would flippers, wholesalers, and investors be prohibited from using 1031s for various investment products across different investment platforms? My idea is frictionless movement, capital going to the spots where advantages reside!
The potential for innovation in the industry is boundless, once restrictions are lifted or eased. In recent years, discussions have gained momentum about reshaping the real estate investment arena through novel approaches. One such approach involves integrating the wisdom of American Indian tribes with revamped regulations that could have a transformative impact on the industry.
Let’s consider the idea of a convergence of a new open American Indian governmental real estate investment approach with established concepts like 1031 exchanges and Real Estate Investment Trusts (REITs). I am suggesting a new path towards low taxed and zero capital gain product offerings. This could foster new transactional behavior with built in deal edges and investing hedges.
The Current Landscape: Traditional concepts like 1031 exchanges and REITs have been cornerstones of the real estate investment world, offering tax advantages and facilitating portfolio diversification. A 1031 exchange allows for the deferral of capital gains taxes when swapping one investment property for another "like-kind" property. REITs, on the other hand, allow investors to access real estate assets by purchasing shares in a publicly traded company that owns and manages income-producing properties.
A Critical Question: What constitutes the necessary "investment intent" to qualify for a 1031 exchange? This is an area where I see weakness in the existing policy construct. intent is crucial in the current policy to distinguish investment properties from those held primarily for resale. As a novice in this space, I would ask why? Seems like a new drawing board needs some work.
The case law in this area emphasizes passive appreciation as a distinguishing factor; properties acquired with the hope of appreciation alone may not qualify. This is old legacy policy standing in the way of innovation. Someone in Washington D.C. (Congress) once wrote this, and here it stands in the way of fresh thinking. For societies and investments to flourish, especially in the face of rising interest rates, we must chart new courses. Sadly, Congress is simply not up to this task. Tribes can offer a new way with responsive governmental approaches.
American Indian Paradigm: An innovative approach could reside in collaborating with American Indian tribes to rewrite the rules of engagement. By leveraging the unique insights and strategies of tribes, a fresh perspective on investment intent could emerge. Historically, tribes have maintained a deep connection to the land, often with long-term investment intentions. Incorporating tribal approaches could provide a novel perspective on what constitutes genuine investment intent, potentially reshaping how the industry perceives property acquisition and ownership. In this context, tribes could be the new governmental deal maker that the industry needs.
Redefining Investment Intent: Under this new paradigm, a revised assessment of investment intent could take center stage. Rather than solely considering the time of the exchange, this approach might incorporate post-exchange events and actions to loosely gauge investment intent. By focusing on a broader timeline, the industry could gain a clearer understanding of a property's overall trajectory. This could fuel a new realization for investors across many investment product lines.
Potential Regulatory Shifts: Imagine a scenario where regulations facilitate more fluid transactions between various real estate stakeholders. This might include wholesalers, flippers, long-term holding companies, private equity firms, socialized capital via crowd funding, and passive investors. Such a regulatory shift could encourage diversified investment strategies, fostering a dynamic and resilient real estate ecosystem. All current participants could take part in such a seed change.
Under this work, the throttle for investing could be opened in such a way that favors growth, investors, and investment aggregation long-term.
As the real estate industry seeks to push boundaries and redefine traditional norms, there is ample room for innovation with tribes. By engaging American Indian perspectives and retooling existing regulations within a new governmental ecosystem, a new era of real estate investment could emerge.
Added Potential: It is worth noting, there is a significant marketplace that real estate innovators, and creative financing companies could leverage as it relates to tribes.
Further, there are at least 42 states across the country where housing investing dollars could flow into these new market approaches. This could work as a tribal elevator to larger capital stacks for bigger deals!
This work is important and advantageous because tribes and their surrounding communities need to better harness investing vehicles into creative financing structures. A dollar needs to go further. This is especially true when we consider inflation adjusted averages and current interest rates. The chart above tells part of the story, but there is more meat on the bones that tribes do not know how to harvest; better financing modeling is one such example.
Doing more and being creative is a movement tailor made for a new wave of housing and land developments across the country with a new tribal approach.
Notice below, that is a $75M dollar grant program for American Indians. This is simply one example; I could show over a billion dollars in grants for various business options. This access can be leveraged to enhance deal making and broaden investing. Investors could partake in these types of leverage points through JVs.
In Summary: More creative deal making raises the bar for the industry. This paradigm shift not only redefines aspects of investment approaches but it also paves the way for enhanced cooperation between different players in the industry. This naturally creates more business velocity for the entire industry in 42 states. Under Wall Street models, add-on investing options are non-existent.
Ultimately, blending time-tested strategies with fresh new approaches and ideas create a harmonious blend of tradition and innovation, reshaping the real estate landscape for generations to come.
If you would like to learn more about this subject, feel free to reach out here.
Vince DelaRosa is a former legislator for an American Indian tribe and the founder of Native Advisors.
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