‘Tis the Season to Consider Family Owned Real Estate Assets

What better time than the winter holiday season to talk about avoiding conflict and maximizing value for family-owned real estate assets? Family gatherings are upon us, tax season is just around the corner, and the real estate market is once again bustling with opportunity.

Whether inherited, directly acquired, or held in a partnership, family-owned real estate can be a source of generational wealth and opportunity. Or they can cause considerable heartache today and for generations to come. Here are four tips for harmonious, profitable management of family-owned real estate:

1. Hire an unrelated, independent professional who will give you an unbiased and unemotional evaluation of the real estate owned.

Whether you’re incorporating real estate into an estate plan or you have received individually or jointly inherited real estate, an objective professional evaluation is essential. The emotional investment, if you will, that many people have in family owned real estate, combined with often incompatible financial needs and desires of family members, can cause family stress and lead to poor decision making. An experienced professional can help owners navigate the process of establishing a goal-focused real estate plan that can be merged with overall wealth management objectives and individual needs.

2. Integrate the real estate strategy into tax and estate planning.

In the recent Wall Street Journal article “When Heirs Collide,” Liz Moyer writes that roughly 70% of families lose a chunk of their inherited wealth, mostly due to estate battles. Due to real estate’s illiquidity, the need for additional capital investment, and its significant but often uncertain value, many families fail to successfully incorporate real estate into their estate planning.

3. Consider the financial resources available to continue ownership of the real estate.

What are the real and “quality of life” costs of family owned real estate? In the case of jointly inherited commercial property, can multiple heirs support the cost of continued ownership and are they willing to do so on an equal basis? Are family issues getting in the way of smart financial decisions? Taxes, fees, and the time cost of real estate assets should all be taken into consideration when evaluating continued ownership. An objective third party can help families identify the commitments and obligations that come with real estate ownership.

4. Designate a family representative to make the real estate decisions.

Analysis paralysis. Too many cooks spoil the broth. Choose your idiom; they all hold true in the case of family owned real estate. Jointly owned family assets can easily suffer neglect and loss of value when no one is accountable for decision making. One person is on the West Coast; one is on the East Coast. One is married with kids; one is single and jet setting around the world. Three things to consider when choosing a decision maker: 1) the logistics involved in day-to-day property management, 2) the real estate and financial expertise of the individual owners, and 3) the long-term estate goals for the property.

Real estate ownership can be a tremendously rewarding way to build family wealth. Follow these four tips for more harmonious and profitable asset management…and pass the brisket.