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Category Archives: 1031 EXCHANGE

What Can (and Can’t) Be Traded In A 1031 Exchange

Although the provisions of Section 1031 have been around for a long time, there are still investors who are not familiar with the tax savings offered by this powerful piece of tax code. And even for those investors who have heard of a 1031 exchange, their knowledge rarely goes beyond the basics. In fact, many investors believe (wrongly) that only real property can be exchanged in these transactions. This is not true. While there are some business or investment interests that are excluded from section 1031 qualification, there are many types of “property” that can be exchanged. Understanding what can (and can’t) be traded opens up a world of possibilities […]

Why Securitized Real Estate Should Be On Every Investor’s Radar

The phrase “securitized real estate” may not be a familiar concept to non-professional investors. However, it pays to learn about this type of investment, as it offers investment benefits not found with other investment vehicles. Securitized real estate is real estate that is packaged and sold as a security. This means it is regulated by federal securities legislation. This offers several benefits, including fuller disclosure and more suitable investments for some investors. Traditional real estate investments have traditionally been popular with investors because they provide a regular monthly income stream, straightforward tax advantages, portfolio diversification and potential equity diversification. Yet, these benefits are often offset by concerns about the property […]

Why Are DSTs So Appealing To Lenders?

Access to and participation in securitized real estate has been greatly simplified for many investors with the advent of Delaware Statutory Trusts (DST). In a DST, the trust owns 100% of the fee interest in the real estate and is the sole borrower. This usually results in very competitive interest rates, far more favorable than a single investor (or group of individual investors with individual credit ratings) may be able to obtain. Why do lenders find well-structured DSTs so appealing? Several reasons. First, the DST sponsor usually has a solid property management reputation, which greatly enhances the likelihood that investment-grade real estate will be properly dealt with. This is in […]

Don’t Forget About Recaptured Depreciation In Your Next Exchange

Savvy investors understand that a 1031 exchange is one of the fastest ways to grow a real estate investment portfolio. Avoiding capital gains tax offers the advantage of immediately reinvesting money that would otherwise go to the IRS. Sounds great, right? Unfortunately, there is one special rule that catches investors off guard when they are planning their exchange – recaptured depreciation. Special rules apply when depreciable property is involved in an exchange. The general rule is that if you exchange like-kind depreciable assets (one building for another building or one piece of equipment for another piece of equipment), depreciation recapture can be avoided. However, if your exchange involves trading improved […]

Understanding Securitized Real Estate

For the non-professional investor, a phrase like “securitized real estate” may not be a familiar concept. However, it pays to learn about this type of investment, as it offers a unique set of benefits not found elsewhere. Securitized real estate is simply real estate that is packaged and sold as a security. As such, it is regulated by federal securities legislation which promotes fuller disclosure and provides more suitable investments. Traditional real estate investments have proven popular with investors because these type of investments provide straightforward tax advantages, regular monthly income, potential equity appreciation and portfolio diversification. Yet, these benefits are often offset by concerns that with real estate comes […]

Understanding The Inner Workings Of A Delaware Statutory Trust

Owing to an aging investor population, one trend that is seen is that investors – especially baby boomers – are seeking out more passive investment opportunities. They no longer wish to concern themselves with the day-to-day responsibilities of dealing with tenants and the issues that come from direct ownership of rental properties. This desire for passive investing is fueling greater interest in investment vehicles like Delaware Statutory Trusts (DST). With a DST, a trust is created as a separate legal entity under the laws of Delaware for the purpose of owning a 100% fee simple interest in real estate. The DST then invites investors to participate as beneficial owners of […]

Top Six Tips For Identifying Your 1031 Exchange Property – Part 2

Earlier, we shared with you some tips on properly identifying replacement property in your exchange. Today, we conclude this series with a few final thoughts. Each should become a requisite part of your process, so that your exchange does not fail because you made an error in identifying replacement property.  Manner Of Identification – This must be in writing and signed by the investor, and the property must be unambiguously described. This generally means identified by address or legal description. If the property is one where the investor is acquiring less than 100% interest, the percentage share of the acquisition must be identified, too. Provide Information To The Right Person […]

Top Six Tips For Identifying Your 1031 Exchange Property – Part 1

There is no argument that the IRS is quite strict when it comes to applying the rules governing 1031 exchanges. Every year, hundreds of proposed exchanges fail because the investor fails to meet one of the requirements set forth in the code. One of the biggest areas where mistakes are made? Identifying the replacement property. To make sure you don’t make a misstep here and jeopardize your next exchange, we offer our top tips for identification. Tomorrow, we will share our final tips. 3 Property Rule – There are different rules that set forth how many possible replacement properties may be identified by an investor, but most follow this rule. […]

Accurate Record Keeping Is Essential For A 1031 Exchange

The whole point of a 1031 exchange is to allow for the deferral of capital gains tax on the sale of investment or business property. When done correctly, a series of subsequent exchanges can allow an investor to defer capital gains taxes for decades and even indefinitely in limited situations. However, when you rely on multiple exchanges to keep the taxman at bay, one thing is absolutely non-negotiable – keeping accurate records. The risk of an IRS audit could happen at any time. Even if you conduct multiple exchanges, you will eventually need to calculate the taxable gains from every transaction. Not having immediate and easy access to the needed […]

Net Lease Casual Dining Properties Outperform Market

According to a recent article in Realty Biz News, cap rates in the net lease casual dining restaurant sector were 5.75% in the first quarter of 2016. Casual dining restaurant properties with corporately guaranteed leases had cap rates of 5.65% while franchisee leased properties were priced 65 basis points higher at 6.30%. Cap rates for casual dining restaurant properties will vary depending on if the lease is guaranteed by a franchisee or corporate operator. In the first quarter of 2016, franchisee backed casual dining restaurants accounted for only 31% of the overall supply of casual dining restaurants. Franchisee operated restaurants were priced at a 65 basis point discount compared to […]