Arguably the biggest decision when selling an appreciated investment asset, such as commercial real estate or business interest, is what to do with the net proceeds. For most sellers, it represents the rewards from their life's work; gains from risks taken that they fully understood and could personally manage. Should they now protect those gains through a conservative investment approach or keep them in play elsewhere in hopes of even higher profits?
Here's an interesting anecdote regarding a recommendation made and followed in the disposition of a large commercial real estate property.
It was the summer of 2007, and my potential client was selling a property for almost $100 million. One of the seller's stated objectives was to defer gain taxes on a significant portion of the gain without doing a 1031 exchange. I proposed using an installment sale under the Structured Sale program, and was able to quote payments (return of principal plus interest) for 15 years based on a fixed, guaranteed IRR of approximately 5.25%.
The stock market back then was soaring and the Dow would exceed 14,000 by October. Thus, the seller's accountant was sure his client could do better than 5.25% tax-deferred, and so advised his client NOT to consider the Structured Sale program. So, the seller took his advice and, instead, paid over $20 million in gain taxes at closing.
And, then invested the balance - after tax - in . . . what?
Oh, if we could only turn back the clock!
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