Have Frank Discussions Evaluate the Asset ’ s Performance
Having frank discussions is where people tend to struggle the most . Sometimes people are reluctant , but it is important to have honest and open conversations with your estate attorney and wealth management advisor regarding the future of the family . It ’ s best to be open about goals and obstacles that could arise down the road .
Kneejerk responses to dramatic life events can yield irrational investment behavior . Making assumptions about an individual ’ s intrinsic motivation and perception of the situation can yield drastically negative results . Asking the parties not only what they need out of the real estate , but also why having the real estate itself is meaningful is sometimes difficult , but often cathartic . Asking this type of question smooths the course , maintains positive relationships , and often has a positive impact on the health of the investment .
People don ’ t always take the time to look closely at a real estate asset and evaluate if it ’ s performing as well as it can and how it reacts to different circumstances . Partner with a real estate professional to have an analytics report completed on the asset to understand past , present , and future forecasting performance .
The performance analysis should include the following :
• Investment objectives
• Historical performance as compared to the market / submarket
• Debt service coverage analysis
• Asset basis
• Cash on cash returns
• Current condition of property
• Internal rate of return
• Cash flow
• Cash reserve analysis
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The analysis should focus on the strategies that can be implemented to maximize cash flow while adding value , as well determining if the asset is underutilized or underperforming .
Understand the Risk
It ’ s important to get a full understanding of the different elements that make up your real estate and how they might perform in the context of today ’ s world , while considering future uncertainties and risks .
In working to understand the risk , there are some additional key questions to consider :
• Are there any environmental issues ?
• How is the asset currently titled ?
• Has an insurance valuation been performed to ensure adequate coverage ?
• Are the returns acceptable as it relates to the overall risk ?
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When it comes to a real estate succession plan , or an estate plan , it isn ’ t one and done . Family dynamics , situations , and values change , and will need to be revisited along with those ongoing conversations .
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