WHAT IS AN OWNER’S REPRESENTATIVE?
An Owner’s Representative serves as a trusted liaison throughout the building process, managing all of the details and representing a client’s best interest and budget. It’s a representative who thoroughly understands every aspect of the building process and also thoroughly understands a client’s vision, therefore ensuring that the vision is consistently carried out from beginning to end.
An owner’s representative can help a client select the best team, from the real estate agents and architects to the contractors and interior designers, acting as the single point of contact throughout. That way, the owners are working with one person on their behalf, and that person has the owner’s best interest at heart.
Most people have a vision for their luxury home or high-end project. They have high expectations for unwavering levels of quality and they want consistency in the execution of their vision from the time the land is chosen to the first time they walk through the front door. But they simply don’t have the time or desire to manage the extensive building process. After all, these projects are significant investments while being extremely labor intensive, and if they aren’t properly monitored, budgets, timelines and design consistency tends to go astray.
An Owner’s Representative is a natural and necessary solution, and Stoa Management ensures that client needs and expectations are met throughout each step of the building process.
David Fisher of Creative Real Estate Strategies Explains
In my 30 plus years in practice, one of the toughest things that has had an impact on my ability to make proper decisions for my clients is understanding the emotions and realities of the situation. For example, understanding that the stock market bubble in 2000 was coming to an end and that the days of making fairly easy profits in the market were over, leaving the stock market was a difficult but correct decision to make. But we did and we moved on. Although the profits were real, they were still “on paper” and could be moved to another opportunity in a given moment.
Real estate is a completely different reality. I remember many years ago a client telling me why he only invested in real estate and not the stock market. He said that a stock certificate is a piece of paper that could become worthless one day but with his real estate, he could walk on it, touch it, improve it and it will always be there. That’s tough to argue with because he’s right. But when dealing with large properties like legacy ranches, the emotions and realities are magnified dramatically. I remember when I moved out of state years ago, I had to relinquish my driver’s license in favor of a driver’s license from my new home state. At that time, I had held that license for 30 years and when I handed it over, I felt like I was losing a member of the family. And that was just a license.
When owning a property for a long period of time, it becomes a member of the family. It’s nurtured and it grows up like a child. Those seedlings have now become wonderful trees. The pond brings back memories of summers past. The years have brought additions and improvements to the ranch. The kids no longer inhabit the long ago built tree house but now it’s the laughter of the grand kids. But as with life, there comes a point when it’s time to move on and allow another family to buy the property so they can create their future memories. Moving on is always somewhat painful and stressful so it’s the obligation of the advisers to alleviate as much of the emotions as is possible.
One of the unforeseen disappointments in selling a legacy property that has been part of the family for decades is the impact of taxes on the sale of the property. Capital gains taxes, state taxes where applicable in 43 states and depreciation recapture can dramatically reduce the sales proceeds to the sellers and quite often, can cause problems in the negotiating process for the property. The buyers may want to make improvements to the property and thus may be limited in the offer they are willing to make while at the same time, the sellers need to maximize the proceeds from the sale since those proceeds may need to be invested to provide a retirement income for the rest of the seller’s lives. And of course, let’s not minimize the impact of the time, efforts and money spent by the land brokers to bring the negotiations to a successful conclusion for all parties involved.
Although there are several different ways to sell a property, one approach that is becoming quite popular is the Deferred Sales Trust. The DST was created to allow the seller of highly appreciated real estate defer the capital gains tax, state tax where applicable and some depreciation recapture on all of the sales proceeds for as long as the seller would like. In its simplest form, the DST is a tax compliant installment sales contract with a third party trustee. The Deferred Sales Trust is a trademarked name that’s based on the tax code including Section 453 so many CPA s and attorneys are familiar with the code but may not be familiar with the trademarked name.
When the price of a property is agreed upon and the property comes to the final closing, the property’s ownership is transferred to the DST and then sold to the buyer almost simultaneously. The proceeds are sent to the third party DST so there is no constructive receipt to the seller. The buyer now owns the property and the proceeds are in the DST for the seller’s benefit. The proceeds are then invested according to the wishes of the seller and through the use of an installment sales contract, the seller now receives monthly taxable income from the DST. The seller can receive either income only for whatever length of time the seller would like or a combination of income and a portion of the proceeds each month. Capital gains tax, state tax and some depreciation are not taxable to the seller until the time that the sales proceeds are actually received.
Obviously, the Deferred Sales Trust can be a valuable tool to all parties involved. The land broker can introduce the DST to his client, the seller as a way to maximize the value of the sales proceeds. At the same time, the DST can be introduced to the buyer from either his land broker or by the Farm Credit Services firm that would like to make the loan on the property assuming they will be involved in the funding process.
At the same time, the DST offers other potential opportunities in the buying/selling process. In this particular example, the family would like to sell their ranch and move on to other opportunities so the DST provides them the ability to do so. However what if the client would like to sell their property but attempt a 1031 exchange. Once again, the Deferred Sales Trust can provide all parties involved with opportunities.
One of the biggest concerns in completing an exchange is the time frame imposed by the IRS. First you have the 45 day identification period and then another 135 days to close on the property. In addition, you have other potential problems like dealing with the loan to value of the properties as well as loan financing of the replacement property. Needless to say, there are more obstacles to completing an exchange then there are predators when a salmon swims upstream to spawn. At the least the seller doesn’t die at the end of the process. The DST can be used as a default when for whatever reason during the 1031 time line, the exchange falls apart. Instead of the proceeds being sent to the seller when the exchange fails and becoming immediately taxable, the proceeds are sent to the DST so again, there is no constructive receipt to the seller. As in all situations, the proceeds are invested according to the desires of the seller but just as important, both the seller and his land broker are still “in the game” to buy more real estate. However, now since there is no longer an exchange situation, the seller is free to buy whatever property without concern for having to follow 1031 regulations. Everyone wins.
There are numerous other applications for the DST but these 2 examples are probably the most widely used. For those that have charitable intent, the DST can be used to make a gift to charity that might be more appropriate than using a charitable trust. The DST provides a wealth of opportunities for land owners, land brokers, CPA s, attorneys, qualified intermediaries and rural ag lenders. A well-known Hollywood legend once said, “I’m proud to be paying taxes in the United States. The only thing is– I could be just as proud for half the money”. All he had to do was call me.
David Fisher utilizes 30+ years of experience in insurance, investments, estate planning, taxation and interactions with nonprofit organizations to offer real-world solutions for his clients.
Visit Creative Real Estate Strategies website.
David also has a tremendous article featured in Open Fences Magazine that is full of more information about DST and how their unique characteristics can help you get more out of your sale. To read the the article, click here.
Buying a beautiful property and builidng your Western dream is a wonderful experience and knowing a few things up front can make creating your vision even more enjoyable. I have found that many of my clients are surprised by the cost to build, so I would like to explain the primary factors that drive these costs and provide a brief explanation for each of them. The primary factors are remote locations, engineering considerations and extreme temperatures.
Building in the West requires pulling from a workforce that is most often far from the location of the building site. I have seen cases where the general contractor traveled as far as 250 miles to build on a ranch. This is often necessary to find a company that posses the business infrastructure, workforce and full understanding of all that a complex, multi-million dollar project entails. Using a workforce that is far from their home office adds cost because it requires housing, meals, transportation and increased wages for the workers. This is money well-spent when you are getting a firm that understands what it takes to do a remote project properly.
Much of the Rocky Mountain West is located in the Intermountain Seismic Belt. The potential for earthquakes requires extra structural measures be taken. Montana, for example, has recorded an earthquake with a magnitude of 7.5. Though this magnitude is rare, many smaller quakes occur each year, giving cause for structures to be designed and inspected by a professional engineer. Many structrural elements are required that hide within the floors, walls and ceilings and add cost, though they go unseen.
Considering the fact that some areas in the Rocky Mountains receive over 400 inches of snowfall annually, roof structures must me designed very precisely. Calculations must be made and engineered specifications given for each structural componant that goes into the roof system, often times requiring expensive steel I-beams and structural lumber to be utilized.
Wind is a defining part of the Western landscape, with gusts recoreded over 100 mph. It blows through the valleys and makes it way up to the peaks. This becomes a very relevent concern when it comes time to build. Think about those long-abandoned barns and houses that dot the landscape of the West. They all lean with the prevailing wind. This is why modern building practices incorporate specified stuctural elements to hold the buildings upright and intact. These elements, though hidden, add cost.
When building on a mountain, there must be geotechnical testing performed. This will give an analysis of the sub-surface conditions and let you know if the soil is suitable for a building site. Sometimes it is structurally sound. However, the soil on mountains can tend to shift, so this will require specified action to be taken in order to build a proper foundation that will hold the structure in place. In some cases, the existing soil must be removed, down to the depth dertermined by the engineer, and then replaced by structural soil. In other cases, the engineer will decide to leave the soil in place and do a micropile foundation. This is where many structural steel tubes are drilled into the ground until they hit bedrock, then they are filled with grout. The traditional concrete foundation is then built on these micropiles. This allows the soil under the structure to shift, while holding the structure in place. Either of these foundational elements adds to the cost.
The temperatures in the Rocky Mountains will range from sub-zero to over 100 degrees. It is common to have signifigant swings in temperature over short amounts of time, the ground freezes as deep as 60 inches, there’s high wind, heavy snowfall, and spring melting causes the streams and rivers to flood and all of these factors require that buildings are constructed to the highest, most modern standards available. Considerations such as waterproofing, insulation, cold roof systems, smart framing, ventilation, humidification, flood control, soil erosion control, waterway protection and road placement are just some of the countless things to consider. These factors are in addition to what a normal building project would require and consequently increase the cost.
The best way I can put it, is that you have to look at the life cost when you are building in the Rockies. This is not the kind of place where you can just throw together a simple building. You should assemble a team that has experience in this type of climate. Spend time interviewing your architect, contractor, engineer and interior designer to make sure they understand this entire process. Find resources that will provide you with detailed questions to ask each of them. Have them walk you through their quality assurance process and ask them to tell you some things they learned from the last house they built or designed that will make your project be their best one yet. Finally, ask them why they live in the Rocky Mountain West. Your team has to not only understand, but share your passion, or they will never be looking out for your best interest.
President, Stoa Management
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- Jonathan Foote, Architect