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v RE-IMAGINING 1031 TAX DEFERRED INVESTMENT SOLUTIONS
Re-imagining 1031 Tax Deferred
Investment Solutions
“We’re going to give you our money. We worked really hard for it. Please don’t lose it.” These were the words from a third-generation farm-owner who had just made one of the most pivotal decisions of his life… To sell the family farm that had provided a living, built a family, and established a legacy for the next generation. As I sat across the kitchen table with the patriarch, his daughter, and granddaughter, I was reminded that the most valuable form of currency isn’t money—it’s trust. Trust is the foundation of relationships and starts with shared values and aligned interests.
We are seeing the perfect storm with the convergence of highly appreciated property, aging demographics, and the desire to transition from the burden of day-to-day property management to passive lifestyle income. With recent increases in property values of agricultural land1 , we believe investment property owners are more motivated than ever to explore their exit strategies through 1031 tax deferred reinvestment options. For many active property owners, the hardest part of the hold/sell decision is letting go of the familiar…to embrace the unfamiliar. Any worthwhile investment solution begins with education and trusted research.
Under IRS 1031 exchange rules, sellers of investment property can defer capital gains and other taxes, provided they reinvest proceeds into another qualified investment property. However, at its core, a 1031 tax deferred exchange should always be a fundamental investment strategy first and a tax strategy second. The surging demand for investment real estate has resulted in a limited supply of quality 1031 replacement properties. As a result, many investors can be hesitant to sell their relinquished property until they have reasonable assurance of locating and closing a suitable 1031 replacement solution.
So, what are generational farmers, ranchers, sporting and lifestyle property owners to do when evaluating the hold-versus-sell decision? Is it possible to achieve both tax deferral and preservation of investment value in this competitive real estate market? Is there an integrated 1031 solution that combines tax deferral with potential streams of passive income, simplified estate planning, and diversified real estate holdings? If you are asking these questions and ready to transition from actively managed property to passively owned investment real estate, then read on…
Self-Storage
One of the fastest growing segments of the 1031 exchange market is the Delaware Statutory Trust (“DST”)2. Pre-structured DSTs are intended to be a “turn-key” solution designed for diversified property ownership, potential for multiple streams of passive income, and efficient replacement property identification and closing. Many DSTs are pre-structured programs, sponsored by national investment management companies with proven track records. In some cases, investors can identify and close on their individual DST property interests within days of selling their relinquished property and potentially begin enjoying passive cash flow.
DSTs can be offered as either all-cash investments or partially leveraged programs with non-recourse debt. With low investment minimums, investors can combine multiple property interests like building blocks or “Legos” to arrange highly-diversified and personalized real estate investment portfolios. DSTs represent diverse asset classes and investment strategies, including: New Class “A” multifamily residential communities, Industrial properties such as Amazon and Ford distribution facilities, Manufactured Housing, Self-Storage portfolios, Healthcare/Medical properties, and Essential Service properties such as Kroger Grocery, Dollar General, Tractor Supply, Walmart, and Walgreens. Depending on the investment amount, and the investor’s risk tolerance and investment objectives, Petra can generally allocate to each of these asset classes in an attempt to increase diversification and optimize performance outcomes.
Multifamily Medical
While there is always risk to real estate investing, DSTs are offered as securitized real estate that must pass through multiple levels of due diligence and underwriting before being offered to qualified investors. If you are interested in learning how to transform your hard-earned wealth into a diversified portfolio of DST properties with the potential for passive income, please give us a call.
Essential Properties
Industrial
Investment results and distributions are not guaranteed. 1031/DST transactions are speculative investments and are suitable only for investors with high risk tolerance that understand the risks, including: loss of entire investment, illiquidity, lack of marketability, long-term investment horizons, risks associated with real estate investment, and general market risks.
1 US Department of Agriculture, Land Values 2021 Summary Report, August 2021. 2 WealthManagement.com, “The DST Industry’s Growth is Fueled by 1031 Investors”, March 22, 2021.
