A thorough examination of options and opportunities for investing in real estate in 2011

For more than 30 years our firm has acted as an active participant advising our clients in the development of real estate, from the construction and development of new projects to the acquisition and disposition of existing income property. Whether you're thinking of getting into the real estate business or making an investment, today's economic climate demands a thorough examination of options and opportunities, and a careful assessment, or reassessment of your objectives. Goals that were set five years ago may not be achievable in the current marketplace. Credit is tighter and deals are smaller, with less bundling of multiple projects to protect investors on the down side. Returns are different than what were experienced previously and less of a certainty. Therefore, the decision to buy or invest becomes more of an economic conclusion and less of a tax decision in this marketplace. Taxes vs. Economics While tax repercussions remain an important consideration, your economic assessment should first consider what you paid for the property and its performance. If it's performing well in a depressed market, you may choose to hold off selling until the market shows improvement. A look at the discounted tax flow can help to envision the benefits or downside of holding the property. If you're locked into an unprofitable long-term lease or other money-losing situation that will only dissolve if you sell, that may be reason enough to dispose of the property. Tax laws that affect transactions are not limited to only a favorable capital gains rate. Other, and perhaps bigger considerations include a careful examination of changes to and incentives tacked onto depreciation laws. For example, 179 and bonus depreciation are more favorable for 2011 than for 2012. These might be areas of future change and bear careful attention. Currently, investors are evaluating opportunities and are waiting on any further change in tax laws when all the economic incentives and tax proposals on the table have been completely vetted and finalized. Have a Way Out More important than ever is a well-thought out exit strategy. How will you sell when you want or need to sell? Carefully examine the specific marketplace and determine the need and demographic changes, and how you can plan strategically. Every transactional opportunity must precipitate a "why am I doing this?" exercise, asking, "Am I a speculator? A real estate professional? Why am I in this game? What brought me in?" At one time an extensive demographic study might have been seen as a luxury or add on; in today's market it's a necessity. A thorough examination of current appraisals in similar transactions is crucial. The comparatives must be fresh; the market is extremely volatile and subject to the ups and downs of the global economy. Success, more than ever, is based on a combination of expertise and capital. Due diligence is critical. Ignore it at your own peril. No one is ever so experienced that they do not have to conduct due diligence. Mark Meinberg, CPA, is managing partner at MayerMeinberg LLP, Syosset, N.Y. and the past president of the Nassau Chapter of the New York State Society of CPAs.