Property Owners Looking for Cash-Flow
Virtually any property that will be held for business or investment purposes is suitable replacement property for a 1031 exchange. If you’re looking for property in proximity to where you live, we’d typically recommend you work with your local real estate professional. Likewise if you’re looking for a rental property in another location. However, there’s an inevitable point in the real estate investment lifecycle where property owners would like to “cash in their chips” and receive secure monthly income without the landlord responsibilities. It’s an objective we hear from clients quite often. They’ve grown their assets and are either selling that raw land to a developer; grown weary of the moving parts associated with multi-family properties, or simply tired of being a landlord and dealing with the associated toilets, trash, and tenants. They’ve benefited from 1031 Exchanges along the way and have deferred what, at this point, is typically a very sizable capital gains tax bill. This provides a major incentive to “swap till they drop” where they continue to defer this tax until their death, at which point their heirs inherit the real estate holdings at a “stepped-up” cost basis – thus eliminating the large tax liability altogether. Regardless of where they’re coming from, what they seek now is dependable cash flow that they’ll essentially ride out the rest of their days. Sound familiar? You’re in the right place.
Options: More than just DSTs
Often at this point, property owners aren’t very familiar with their investment options – especially if they’re looking for passive investments that are free from landlord responsibilities. The 1031 industry itself doesn’t help this scenario very much – it’s quite fragmented. First, property owners will need a Qualified Intermediary (like us) to facilitate their exchange but Qualified Intermediaries typically only work as facilitators to the 1031 process itself so where do property owners turn for 1031 investment options? A financial advisor? Real estate agents? The internet? 1031 exchange investments are so niche, very few agents and advisors are well-equipped to help property owners find investment options for a 1031 exchange.
This leads many to the search the internet for options. However, it can be incredibly difficult to find something when you’re not quite sure exactly what it is you’re looking for. Online searches for 1031 properties will inevitably lead to the first option – an investment format called the Delaware Statutory Trust or “DST” for short. It’s a very popular 1031 investment option, but not the best fit for every situation. Because of the popularity, most will have a hard time discovering any other viable options and even if they do, the burden of distinguishing a suitable investment is placed on the exchangor.