--- title: When to Reallocate Real Estate Assets description: Investors need to be vigilant in spotting shifts in longer term fundamentals and consider reallocating investment funds if previous assumptions and investment strategies fail to deliver optimum results. image: https://blog.fgg1031.com/hubfs/Untitled%20design%20(3).png --- [info@firstguardiangroup.com](mailto:) [(866)398-1031](tel:(866)398-1031) [![fgg](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/fgg.png)](https://brokercheck.finra.org/individual/summary/6470002) [![fgg-871923](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/fgg-871923.png)](https://www.bbb.org/us/ca/san-jose/profile/commercial-real-estate/first-guardian-group-1216-887513) [![logo](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/logo.png?width=175&height=56&name=logo.png "logo")](http://fgg1031.com) - [Home](https://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) - [Resource Center](https://fgg1031.com/resource-center/) - [Glossary](https://fgg1031.com/glossary/) - [Accommodators](https://fgg1031.com/accommodators/) - [FAQ](https://fgg1031.com/faqs/) - [Tax eBook](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies-ebook) - [Real Estate eBook](https://pages.fgg1031.com/real-estate-investing-in-the-new-era2) - [QI eBook](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook) - [Tax Calculator](https://fgg1031.com/tax-calculator/) - [Newsroom](https://fgg1031.com/newsroom/) - [Blog](https://blog.fgg1031.com/blog) - [Events](https://fgg1031.com/events/) - [Contact Us](https://fgg1031.com/contact/) ![search-interface-symbol](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/search-interface-symbol.png) ![loader](https://f.hubspotusercontent-eu1.net/hubfs/24949188/Business%20and%20Finance/global/22.gif) ![close](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/close.png) From Pages From Blog Pages Load More Load More **Sorry, we couldn't find a match for  "".** Check your spelling or try a related search term. 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Provided that the economic fundamentals of a real estate investment remain sound, and there are no external factors that may necessitate selling, we found that our most successful clients rarely sell properties. They invest for the long term, avoid reacting to short term market changes, and count on time to be their friend.   However, investors need to be vigilant in spotting shifts in longer term fundamentals and consider reallocating investment funds if previous assumptions and investment strategies fail to deliver optimum results. During the past year, we have seen a growing number of our clients selling investment properties they have held for long periods and reinvest proceeds in order to better position their real estate portfolios to better align with several strategic trends that are becoming apparent. In this blog post, I would like to discuss the impact of three top factors that are driving our clients to consider reallocating real estate investment funds: Inflation, Recession, and Demographics. #### **Factor # 1: Inflation** Notable economists have been signaling that higher rates of inflation may be with us for the foreseeable future. They cite underlying factors such as high government spending and monetary expansion during COVID, rising energy costs due to supply constraints, and higher borrowing costs due to rising interest rates. During most of the past 40 years, inflation has trended to range in an annual rate of 1% to 3%. For the past two years, the annual inflation rate has rapidly escalated and appear to be stabilizing at levels well above the historical Federal Reserve annual target of 2%.  ![Screen Shot 2023-03-15 at 6.52.58 PM](https://blog.fgg1031.com/hs-fs/hubfs/Screen%20Shot%202023-03-15%20at%206.52.58%20PM.png?width=583&height=362&name=Screen%20Shot%202023-03-15%20at%206.52.58%20PM.png) Source: World Bank This data is especially concerning to investors who are holding real estate assets with longer term leases that limit annual rent increases. Today, most leases of commercial office, industrial, and retail properties limit rent increases to less than 3% per year. If property income cannot keep pace with higher inflation rates, property values can be negatively impacted since sales values are highly correlated to the amount of income that a property is generating at the time of sale relative to comparable properties. This realization has resulted in growing demand for more inflation resilient real estate assets having shorter term leases where rents can be more aggressively raised such as apartments, storage, student housing, and select senior housing properties.  While select non-residential and retail properties remain attractive to many investors, we have seen a decided shift in our investor base towards more inflation resilient assets. #### **Factor # 2: Recession** During the 70s and early 80s, the US experienced not only heightened inflation rates, but an extended low growth environment in the US that was called Stagflation. To curb persistent inflation, the Federal Reserve Chairman at the time, Paul Volker, took extraordinary steps to raise interest rates from 11.2% in 1979 to 21.5% in 1981 which helped trigger a significant recession from 1980 to 1982. When learning real estate investing basics from my father. I remember his advice for investing in difficult economic periods. *“Paul, if I had two dollars to spend during the Great Depression, I would spend the first dollar to put food on the table and the second dollar to keep a roof over our head.”* In challenging economic times, people generally cut back on discretionary items and limit spending to necessities such as food, shelter, healthcare, etc. While asset values may decline during recessions, income will tend to hold-up since people will strive to pay for food, other necessities, and to maintain a place to live. As I have witnessed through the roughly 8 or so recessions that I have lived through, real estate assets that are regarded as necessities such as well positioned apartments, grocery and discount stores, and medical centers tend to perform better than commercial office and non-necessity retail.  #### **Factor # 3: Demographics** Early in our real estate education process, we all learned these three most important keys to smart real estate investing:  *Location, location, location* To which my father wisely added:  *“Paul, invest in places that people are moving to and not away from.”* As I have previously written over the past 3 years, we have seen a tremendous population shift across the US that greatly accelerated during COVID which is being caused by the following factors” - **Work from home** – a growing number of employers are not only permitting but encouraging remote work when practical. This is done not only to retain talent in today’s tight labor market, but to increase productivity since employees no longer need to give up potentially productive time to commute to work.  - **Flight from more expensive, higher crime urban markets** – as remote employment gains greater acceptance, younger workers are moving to areas offering lower living costs and lifestyles that may be preferable to living in large cities. - **Desire to raise a family** – Millennials and Generation X, i.e., folks born between 1965 and 1996 that represent the largest group of our population who are starting and raising families. Many can no longer afford to live where they currently live and work and want to live in an area with good schools, low crime, and diverse employment opportunities. Large employers are recognizing this trend and are expanding their operations to such areas nationwide thereby creating new real estate investment opportunities. Here’s a recent snapshot of large cities who are losing population:  ![Screen Shot 2023-03-15 at 6.53.15 PM](https://blog.fgg1031.com/hs-fs/hubfs/Screen%20Shot%202023-03-15%20at%206.53.15%20PM.png?width=551&height=417&name=Screen%20Shot%202023-03-15%20at%206.53.15%20PM.png) Source: Brookings Metro Residents leaving these and other declining markets are generally moving to Sunbelt state locations with diverse employment opportunities including cities of Austin, Phoenix, Tampa, Denver, Huntsville, Raleigh-Durham, Charlotte, among many others. Housing options in these “go to” cities are limited since not enough new housing units are being built to meet demand. Rising interest rates are also making it more difficult to purchase and thereby creating more demand for apartments in attractive submarkets.  This trend does not show signs of slowing and is being exploited by a growing number of our clients who, for example, are selling rental properties in California and redeploying their equity in communities that are posed to long-term growth.  #### **Summary** To manage inflation and recession risk and take advantage of more attractive new investment markets, investors should consider reallocating their real estate assets to different investment classes and locations.  This may be an excellent time for you to consider reallocating real estate investment to help manage inflation and recession risks while still aiming for attractive overall returns.  Please contact us at [info@firstguardiangroup.com](mailto:info@firstguardiangroup.com) for assistance to analyze your current real estate investments and to learn more about reinvestment options that may better your long-term investment goals. You can also schedule a meeting with me [here](https://meetings.hubspot.com/pgetty).  [![](https://no-cache.hubspot.com/cta/default/5468919/interactive-183027517719.png)](https://blog.fgg1031.com/hs/cta/wi/redirect?encryptedPayload=AVxigLJVCNYs1htpVNcyntQaTG0od1w6pHyUIEbU9Ch3Dc36QOKPF0xsEpjD5bf7rErsgGq4WmhkTEZHNDSj8Ocb9mmyXnNORJxNSh1D%2F%2FnlUBgK5C59CmppsL%2B1VRRvZYlrPDO9AcP0Gi%2BINCp1cS2ImU27zhO%2FSqAlMZH3FVfxDEtlhrvL6eb42WwXZzKMMcDEaCQcMM9ESa192k0c4cE5QIWltpaV%2BWu%2BrNCnYieaGgKz&webInteractiveContentId=183027517719&portalId=5468919) --- 1 [https://fortune.com/2023/01/21/top-economist-mohamed-el-erian-inflation-stick-4-not-alone-economic-outlook/](https://fortune.com/2023/01/21/top-economist-mohamed-el-erian-inflation-stick-4-not-alone-economic-outlook/) 2 Longer term Triple Net Leases (NNN) do place a burden on tenants to cover rising costs of building operation and maintenance thereby providing a degree of inflation protection.  3[https://en.wikipedia.org/wiki/Paul\_Volcker#:~:text=The%20Federal%20Reserve%20board%20led,rate%20rose%20to%20over%2010%25](https://en.wikipedia.org/wiki/Paul_Volcker#:~:text=The%20Federal%20Reserve%20board%20led,rate%20rose%20to%20over%2010%25)   ### [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) Paul M. Getty is one of the most experienced 1031 exchange specialists in the United States, with a career in real estate that spans over 35 years and more than $5 billion in commercial transactions across every major asset class. His work covers single-family rentals, apartments, retail, office, multifamily, and student and senior housing, giving him a practical understanding of how different property types perform across market cycles and how investors can move between them using tax-deferred exchange strategies. As President and CEO of FGG1031 | First Guardian Group, Paul advises investors through the full 1031 exchange process, from identifying qualifying replacement properties to structuring acquisitions through Delaware Statutory Trusts (DSTs) and wholly owned real estate. His guidance covers both the compliance requirements of a valid exchange and the investment decisions that determine long-term portfolio outcomes – a combination that is difficult to find in a single advisor. Paul holds a California and Texas real estate broker license and carries Series 22, 62, 63, and 82 securities licenses as a registered representative with Emerson Equity LLC, member FINRA /SIPC. He has represented buyers and sellers across complex commercial transactions, sourced and structured debt and equity, and worked alongside nationally recognized firms including Marcus Millichap, CBRE, JP Morgan, and Morgan Stanley. Before founding FGG1031, he co-founded Venture Navigation, a boutique investment banking firm whose M&A and IPO activity generated over $700 million in investor returns. Paul holds an MBA in Finance from the University of Michigan and a bachelor’s degree in chemistry from Wayne State University. He has also completed coursework in artificial intelligence at Stanford University. He is the author of four books on real estate investing and tax deferral strategy, including Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST) and Real Estate Investing in the New Era, both available on Amazon. A frequent speaker on 1031 exchanges, DST investing, and real estate tax strategy, Paul Getty is a recognized voice for investors and advisors seeking guidance on capital preservation through tax-deferred real estate investment. ## Your Comments : This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. - Latest Posts - Popular Posts [Partial 1031 Exchange: How It Works, What Gets Taxed, and When It May Make Sense](https://blog.fgg1031.com/blog/partial-1031-exchange-how-it-works) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [721 UPREIT Options in DST Programs (Part 3)](https://blog.fgg1031.com/blog/721-upreit-options-in-dst-programs) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ 721 Exchange](https://blog.fgg1031.com/blog/topic/721-exchange) [ UPREIT](https://blog.fgg1031.com/blog/topic/upreit) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) [Can a 9% Taxable Return Beat a 4.5% Tax Advantaged DST?](https://blog.fgg1031.com/blog/can-a-9-taxable-return-beat-a-4.5-tax-advantaged-dst) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) ### Categories - 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[Investing in Senior Housing October 20, 2022](https://blog.fgg1031.com/blog/investing-in-senior-housing) - [A Closer Look at the 7 Deadly Sins October 20, 2022](https://blog.fgg1031.com/blog/a-closer-look-at-the-seven-deadly-sins) - [What is a Springing LLC? October 20, 2022](https://blog.fgg1031.com/blog/what-is-a-springing-llc) ## Useful Links - Home - About Us - Blogs - Testimonials from Past Customers - Resource Center - Current Offerings Disclaimer: There is no guarantee that any strategy will be successful or achieve investment objectives. All real estate investments have the potential to lose value during the life of the investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This material contains information that has been obtained from sources believed to be reliable. However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect.  The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. Securities offered through registered representatives of [LightPath Capital, Inc.](http://www.lightpathcapital.com/) Member [FINRA](http://www.finra.org/) / [SIPC](https://www.sipc.org/). FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities. Copyright 2022, All Rights Reserved, FGG1031 [![FGG_Footer_White](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/FGG_Footer_White.png?width=300&height=95&name=FGG_Footer_White.png "FGG_Footer_White")](http://fgg1031.com) 97 East Brokaw Road, Suite 350, San Jose, CA 95112 [(866) 398 1031](tel:(866)%20398%201031) [info@firstguardiangroup.com](mailto:) [![Bitmap](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/Bitmap.png)](https://brokercheck.finra.org/individual/summary/6470002) ## Recent Blogs - [Understanding the Difference Between Inheritance and Estate Tax August 3, 2023](https://blog.fgg1031.com/blog/understanding-the-difference-between-inheritance-and-estate-tax) - [Public or Private Real Estate? Your Investment Portfolio May Need Both July 27, 2023](https://blog.fgg1031.com/blog/public-or-private-real-estate-your-investment-portfolio-may-need-both) - [How to Use 1031 Exchange Funds to Improve Your Replacement Property July 20, 2023](https://blog.fgg1031.com/blog/how-to-use-1031-exchange-finds-to-improve-your-replacement-property) ## Useful Links - [Home](http://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Blogs](https://blog.fgg1031.com/blog) - Testimonials from Past Customers - [Resource Center](https://fgg1031.com/resource-center/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) FGG1031 | First Guardian Group and Emerson Equity LLC do not provide legal or tax advice. Securities offered through [Emerson Equity LLC](http://www.emersonequity.com/) Member [FINRA/SIPC](http://finra.org/) and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure: - There is no guarantee that any strategy will be successful or achieve investment objectives; - Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; - Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; - Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments; - Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions; - Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results. Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or [FDIC](http://fdic.org/) insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur. **Risk Disclosure:** Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by FGG1031 | First Guardian Group, Emerson Equity LLC, or any affiliate, or partner thereof. FGG1031 | First Guardian Group does not warrant the accuracy or completeness of the information contained herein. Copyright 2026, All Rights Reserved, FGG1031