Welcome to Asset Strategy’s 1031 Replacement Property Options page. 

This page will briefly explain and educate various Passive Real Estate options when using a 1031 exchange.

If you have any questions, feel free to set up a meeting with us or give us a call (contact info below). Thank you!

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WHAT IS A 1031 EXCHANGE?

A 1031 Like-Kind Exchange allows an investor or business owner to sell an investment property and replace it with another property (passive or active ownership) of equal or greater value within a time frame of 180 days from the date of close using a qualified intermediary. If all the criteria are met the investor can defer taxes on up to 100% of capital gains created from the sale of the original property. Some form of 1031 Like-Kind exchanges has been around since 1921.

TIMELINE FOR 1031 EXCHANGE


STEPS TOWARD COMPLETING AN EXCHANGE

The path toward successful 1031 exchanges includes incorporating and understanding several key steps:

  • Consult early on with 1031-familiar real estate professionals to help with your sale and finding replacement property/properties.
  • Engage an experienced Qualified Intermediary (we can make a referral) to handle the transaction.
  • Confirm the Qualified Intermediary can securely protect your exchange proceeds during the period between your exchange sale and replacement property purchase.
  • Align with professionals specializing in the Passive Real Estate marketplace who have ready access to a selection of pre-screened Passive Real Estate vetted by a thorough due-diligence process.
  • Expect strong coordination and frequent updates from your 1031 exchange team.
  • Start searching for Replacement Property as early as your schedule allows to avoid rushes and deadline crunches.
WHAT ARE EXAMPLES OF PASSIVE REAL ESTATE IN A 1031 EXCHANGE?

What is a Triple Net Lease (NNN)?

A Triple Net Lease (NNN) property is typically a leased property where the tenant is responsible for three majority expenses:

  • Property Taxes
  • Insurance
  • Maintenance

This is in addition to their rent. This is a common lease structure in commercial real estate. (e.g., think of Fulfilling Centers, Drug and Health Stores, Warehouses, etc. as just a few of many examples.)

What is a Tenant in Common (TIC)?

Tenants in Common (TIC) is an ownership structure that is allowed in a 1031 Exchange. The ownership structure will own the real estate and each investor owns a fractional share in the TIC. Some of the general guidelines set forth by the IRS in order for a TIC to qualify in a 1031 Exchange:

  • There must be 35 or fewer co-owners
  • Unanimous co-owner approval is required for sale, refinancing, leasing, and management hiring to name a few

What is a Delaware Statutory Trust (DST)?

A Delaware Statutory Trust (DST) is a legal entity formed under Delaware trust law that may be structured to qualify as eligible “like-kind” replacement property for the purposes of 1031 Exchanges.

DSTs permit eligible investors to become proportional owners of professionally managed, institutional-quality real estate projects alongside other accredited investors. As such, DSTs permit Exchangers the potential of achieving the tax benefits of 1031s when exchanged into a passively owned, turnkey investment property.

 

LIKE-KIND PROPERTY EXAMPLES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WHAT ARE THE POTENTIAL BENEFITS?

Passive Investing

  • Passive Real Estate Options can help relinquish the burden of managing properties without giving up the benefits of real estate investing. Passive Real Estate has professional management, so investors don’t have to deal with tenants and associated upkeep.

Tax Benefits

  • As a 1031 exchange, landlords can sell their investment properties, defer all income tax on the sale of the properties and avoid leaving a tax burden to their heirs. If structured properly, in addition to tax deferral treatment, this investment product can potentially provide long-term income and asset preservation.

Income Generation

  • With Passive Real Estate Options, you may be able to collect monthly income on-time with no worries about maintenance, repairs, or vacancies with a portion of this income being received potentially tax-free. Passive Real Estate also allow you the ability to participate in potential income based on any applicable rent increases.

Value Appreciation

  • You will be able to capture your share of any appreciation if the Passive Real Estate investment properties increase in value over time

Diversification

  • Passive Real Estate offers you the opportunity to diversify your portfolio by giving you the ability to choose investments with various geographic locations, property types and debt leverage.

(The hypothetical example is for illustration purposes only. Individual results may vary.)

SMART STRATEGIES

Capital Gain Strategies For Highly Appreciated Investment Real Estate

Asset Strategy is an independent wealth management firm with over three decades of experience. Our ethos is centered on providing our clients with thought leadership, education, and advice across the spectrum of investment and financial opportunities. That’s why we’re excited to help our clients meet their investment and planning objectives when considering the sale of investment properties through a 1031 exchange. We’ll guide you through the process and help you select and acquire suitable 1031 exchange eligible investments to meet your real estate portfolio goals and objectives. Download our complimentary guide today to learn more!

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

There are material risks associated with investing in real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. 

Diversification does not guarantee a profit or protect against a loss in a declining market.  It is a method used to help manage investment risk. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.

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Sean D. Whalen, CFP®, MSF

Director of Private Wealth
Partner – Senior Consultant

781-235-4426 ext. 135

sdw@assetstrategy.com

Sean Whalen, CFP®, MSF is the Director of Private Wealth and Senior Consultant at Asset Strategy. He has 20+ years of experience in investment management, risk management, budgeting, financial planning, and capital gain strategies. He formerly worked at Morgan Stanley and Santander Investment Services. He holds a Master of Science in Finance degree from Brandeis University. Contact us to learn more about our team.

William “Bill” O’Neill, AIF®

Business Operations Manager
Financial Consultant

781-235-4426 ext. 137

wjo@assetstrategy.com

William “Bill” O’Neill, AIF®️ is a graduate of Merrimack College with a BS in Finance. He is an Accredited Investment Fiduciary from the Center for Fiduciary Studies. Bill’s role with Asset Strategy is Communications Manager, which draws from his 25 years of experience as a serial entrepreneur. He was previously a partner/founder in an executive search firm, owned a purpose-built construction company, and helped develop a corporate marketing and communications firm. Bill has also been an investment property investor for over 20 years.