What To Do With Capital Gains From Real Estate

More pain this week for the stock market, as rising bond yields and foreign currency erosion is keeping a fierce bid under the dollar and dollar-based assets. Much of the equity and debt markets have gone through meaningful repricing, and on Tuesday it was reported that housing prices fell for the first time in ten years.

In July the S&P CoreLogic Case-Shiller index of 20 cities posted the first monthly decline since 2012. The biggest month-over-month declines were in San Francisco (-3.5%), Seattle (-3.1%) and San Diego (-2.5%). Since January mortgage rates have literally doubled, sending prospective buyers to the sidelines, resulting in big declines in new home sales and, now, valuations are finally starting to come down after soaring for years.

The national average for a 30-year fixed mortgage rose, as Treasury yields breached 4% on the short end. The National Association of Realtors^® reported that median existing single-family home prices reached an all-time high of $420,900 in June of 2022, falling slightly to $410,600 in July. According to Bloomberg L.P., the supply of new homes for sale in July 2022 registered its highest level since 2008, with further supply that likely coming online in August.

Sellers of properties from May 2022 forward—especially those that are downsizing or selling investment properties—who are looking for an alternative to rolling equity and capital gains into a downward trending market, should consider this: rather than risk a top dollar purchase now, rent a luxury apartment or any other type of residence you desire and reinvest your capital gains into Belpointe PREP, LLC (NYSE American: “OZ”), the only publicly traded Qualified Opportunity Zone Fund (“QOF”). As a result of investing in Belpointe PREP empty nesters can defer the federal (and in most cases state) capital gains tax on profits from real estate sales (or sales from any other type of asset) out to December 31, 2026.

Similarly, owners of investment properties that took full advantage of the bull market in single-family homes to lighten up their holdings during this summer’s peak conditions, may be planning to wait out the current market consolidation, which could take years if mortgage rates remain elevated. Under such circumstances reinvesting realized capital gains from the sale of investment properties into Belpointe PREP, LLC (NYSE American: “OZ”) and deferring taxes out four plus years makes, I think, for a compelling alternative investment opportunity.

Much like a real estate ETF, Belpointe PREP is striving to build out a diversified portfolio with a high level of focus on multi-family housing projects in those markets where the migration of young workers and families are in a secular uptrend. Furthermore, rent growth remains hot in the markets that Belpointe PREP is currently targeting for stabilized acquisitions of other QOFs, with an emphasis on generating free cash flow. These markets include Raleigh, Durham, and Charlotte, North Carolina; Nashville, Tennessee; and St. Petersburg, Florida. Many of these areas are seeing employment levels top pre-pandemic levels, which in turn is driving demand for full-featured Class-A apartments resulting in a steady rise in rental rates.

What is a headwind for the single-family home market, can be a tailwind for the Class A multi-family residential market. Take, for instance, Sarasota, Florida, where Belpointe PREP, LLC (NYSE American: “OZ”) is actively breaking ground on a project within an opportunity zone area. Once considered a playground for retirees, according to U.S. News & World Report’s list for 2022-2023, Sarasota holds the #9 ranking as the best place to live and #1 ranking as the best place to retire in the U.S., as droves of young professionals and new businesses are moving there.

Consider the rapid 20% rate of population growth in Nashville, Tennessee, over the past seven years. According to a February 2022 Wall Street Journal article, next to Austin, Texas, Nashville is the second hottest job market in the U.S. Here, too, Belpointe PREP (NYSE American: “OZ”) has acquired several properties, one for just under $20 million, to redevelop and build out an approximately 266-apartment home community consisting of two 7-story buildings. Belpointe PREP anticipates that the buildings will have a fitness center, courtyard with a swimming pool and rooftop terraces, among other amenities.

Qualified Opportunity Zones have been designated in all 50 states, the District of Columbia, and 5 U.S. territories. While many QOFs are invested in a single property. Belpointe PREP (NYSE American: “OZ”) is striving to build out a diversified QOF, but with a high level of focus on multi-family housing projects in those markets where the migration of young workers and families are in a secular uptrend.

With literally hundreds of QOFs to choose from, Belpointe PREP, LLC (NYSE American: “OZ”), is the only publicly traded QOF where, if you purchase units in the market, there is no minimum investment. Because “OZ” is a listed company, transparency is considerably higher than that of many privately managed QOFs. In addition, while most other QOFs have limited or restrictive redemption features, OZ unitholders can buy and sell Class A units in the open market.

One more key item, which I think is of huge importance, is that unitholders of OZ are not at risk of receiving and being liable for any future capital calls. Capital calls are an unfortunate feature many investors may regularly face in acquiring, developing and renovating private opportunity zone properties.

Investing into a QOF, like Belpointe PREP (NYSE American: “OZ”), allows an investor to defer the tax payment on invested capital gains through the earlier of tax year-end, December 31, 2026, or the date on which they sell their investment. Plus, all income and appreciation from the time one invests into a QOF through December 31, 2047, is potentially tax-free. We spell out how this alternative can work for you in our updated white paper.

Have questions about how Belpointe PREP (NYSE American: “OZ”) can provide opportunities for investment appreciation and income and help you or your clients to defer or eliminate capital gains tax obligations?

Call or email us and we’ll take the time to answer all of your questions about Belpointe PREP (NYSE American: “OZ”) and how reinvesting capital gains into a QOF can be utilized to offset an investor’s tax obligation.

You can contact us at 203-883-1944 or IR@belpointeoz.com.

Cody H. Laidlaw
Editor-in-Chief
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com

Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.

Important Information and Qualifications

Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering

Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing claidlaw@belpointe.com. Read the prospectus in its entirety before making an investment decision.

This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.

Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.

This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.

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