1031 Exchange to REIT Fund?

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truenyer
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1031 Exchange to REIT Fund?

Post by truenyer »

I'd like everyone's expertise. My in-laws (late 70s) own their primary residence outright. They don't have many retirement investments and their primary retirement income comes from a rental property they own.

They are thinking of selling the property into a 1031 exchange in order to avoid cap gains. I have no experience in this area, so I would like some opinions. Here is a brief description:
I want to sell the rental right away and avoid 75K-100K of Capital Gains Tax and Depreciation (will check with accountant on amount) by doing a 1031 Tax Deferred Exchange into a REIT (Real Estate Investment Trust), which will cost a little less than that. (10% + $1200). The sale of the property would cost about 9% of the $700-$850 that it is worth. So we should have about $650K to invest.
Other investments will not give us the ability to avoid Cap Gains, so we would only have $ about 575K to invest if we did not put it in a REIT. Think of the REIT as a stock that is fully liquid after 3 years.
We could get about the same $2000K per month from a $600K investment, growing about 4% per year historically. We could supplement our available dollars by selling some after 3 years (maybe before), and pay zero or low capital gains tax each year, at our income level. (He said cap gains was zero, 10%, or 15% based on income level).

[Wife] is concerned we would not be diversifying, but the minimum for a REIT is $500K and the other investments would mean paying capital gains on the balance.

The umbrella company for 1031 Capital Solutions is Concord Investment Services, which [broker] said is the Number 1 company in US for REIT volume. They have choices other companies do not have.

I am concerned the Seattle Housing market bubble may break as early as this March. I am concerned that all of our retirement funds are tied up in Seattle real estate. I am concerned about earthquakes and about ever more stringent and oppressive rules from the Seattle city council on landlords.
Questions:
1) Is this a valid avoidance of investment property capital gains? Or is it a scam?

2) Any experience with this particular company, 1031 Capital Solutions?

3) How does realizing capital gains work if my in-laws die and still have the unrealized capital gain in their estate? Does the standard step-up basis rule apply?

4) Anything else to be aware of?
SubPar
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Re: 1031 Exchange to REIT Fund?

Post by SubPar »

Unless I'm misunderstanding, I think you're describing a 721 Exchange, or UPREIT transaction - Umbrella Partnership Real Estate Investment Trust. A property is contributed to a REIT's (which is a corporation) operating partnership in exchange for OP units. REIT OP assumes basis of contributed property, contributor receives an interest in OP at FMV on contribution date but maintains existing property's basis so tax neutral event at point of contribution.

If that's the case, yes, it's legitimate type of tax-deferred real estate transaction. I have no experience with Concord and can't opine there.

Tax and legal counsel is 100% warranted.
Northern Flicker
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Re: 1031 Exchange to REIT Fund?

Post by Northern Flicker »

You can do a 1031 exchange of a single-family home that had been a rental property or other rental property to a REIT. My understanding is that the transfer is to a Delaware Statutory Trust that is in turn owned by a REIT. If there is no mortgage, you even theoretically can do a 1031 exchange of the property directly to the DST without selling it and thus without having to use a 1031 intermediary, which increases cost and risk. The latter option is predicated on finding a DST/REIT who will accept the property in an exchange, which is why it is a theoretical option.

Here is a good description of the processes and entities involved.

https://www.realized1031.com/blog/rolli ... ty-to-reit

I'm not aware that the situation has changed to accommodate a more straightforward process than what is described, but I've not followed this issue much lately.

The main benefit would be to liquidate the investment in chunks spread over multiple years, spreading out the gain over multiple years. The REIT/DST's I've looked at had high cost. Together with the high cost of the 1031, it may not be worth the risk. Keep in mind that 1031 fees and DST expense ratios (2%/yr the last time I looked at them several years ago) are applied to the total value of the asset whereas taxes are applied only to the net gain. You will have to run the numbers based on the amount of embedded gain, tax brackets, 1031 and REIT costs.

I agree with the previous poster that professional legal and tax counsel are essential before moving forward.
Last edited by Northern Flicker on Thu Jan 13, 2022 6:58 pm, edited 2 times in total.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
SuzBanyan
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Re: 1031 Exchange to REIT Fund?

Post by SuzBanyan »

Northern Flicker wrote: Thu Jan 13, 2022 6:36 pm You can do a 1031 exchange of a single-family home that had been a rental property or other rental property to a REIT. My understanding is that the transfer is to a Delaware Statutory Trust that is in turn owned by a REIT. If there is no mortgage, you even theoretically can do a 1031 exchange of the property directly to the DST without selling it and thus without having to use a 1031 intermediary, which increases cost and risk. The latter option is predicated on finding a DST/REIT who will accept the property in an exchange, which is why it is a theoretical option.

Here is a good description of the processes and entities involved.

https://www.realized1031.com/blog/rolli ... ty-to-reit

I'm not aware that the situation has changed to accommodate a more straightforward process than what is described, but I've not followed this issue much lately.

The main benefit would be to liquidate the investment in chunks spread over multiple years, spreading out the gain over multiple years. The REIT/DST's I've looked at had high cost. Together with the high cost of the 1031, it may not be worth the risk. Keep in mind that 1031 fees and DST expense ratios (2%/yr the last time I looked at them several years ago) are applied to the total value of the asset wherease taxes are applied only to the net gain. You will have to run the numbers based on the amount of embedded gain, tax brackets, 1031 and REIT costs.

I agree with the previous poster that professional legal and tax counsel is essential before moving forward.
OP: I agree with Northern Flicker. As already noted, your ILs need to make sure that they are not paying more in fees and costs than they are saving in taxes. As a starting point, their CPA should give them an analysis of what the tax impact is if they sell the property at its current FMV. If the difference is just $75k net, it hardly seems worth jumping through the hoops. $575k in liquid assets may mean a much more comfortable retirement than $650k tied up in a DST or UpReit.
Northern Flicker
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Re: 1031 Exchange to REIT Fund?

Post by Northern Flicker »

truenyer wrote: My in-laws (late 70s) own their primary residence outright. They don't have many retirement investments and their primary retirement income comes from a rental property they own.
This may not work from the perspective of their preferred lifestyle or home location, but a tax-efficient option might be to move into and live in the rental property and sell their primary residence with a $500K capital gains exclusion.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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unclescrooge
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Re: 1031 Exchange to REIT Fund?

Post by unclescrooge »

The few DSTs I've seen had incredibly high costs. Better to pay the taxes instead.

However, I've recently seen some opportunity zone funds that looked considerably better. A few of them return almost 80-90% of your capital over a year 3-8 year period, and then start distributions in the 5-6% range. Sale occurs in year 12, with all proceeds being federally tax-free
HeelaMonster
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Re: 1031 Exchange to REIT Fund?

Post by HeelaMonster »

unclescrooge wrote: Thu Jan 13, 2022 9:25 pm The few DSTs I've seen had incredibly high costs. Better to pay the taxes instead.

However, I've recently seen some opportunity zone funds that looked considerably better. A few of them return almost 80-90% of your capital over a year 3-8 year period, and then start distributions in the 5-6% range. Sale occurs in year 12, with all proceeds being federally tax-free
I hadn't heard of these (and therefore claim no knowledge!)... but this article seems to suggest that someone like the OP couldn't use a 1031 exchange to move from rental property to QOZ:

"Because these programs have different purposes and requirements, the answer to the question, “can I 1031 into an Opportunity Zone?” or rather, “can an investor use the 1031 Section to exchange into a QOZ?” is a resounding NO. The main reason is because the like-kind exchange has a like-kind requirement. Exchanging from a real estate property (a real asset) into a Qualified Opportunity Fund (a fund) does not fit the “like-kind” definition."

https://www.realized1031.com/blog/can-i ... unity-zone
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unclescrooge
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Re: 1031 Exchange to REIT Fund?

Post by unclescrooge »

HeelaMonster wrote: Thu Jan 13, 2022 10:24 pm
unclescrooge wrote: Thu Jan 13, 2022 9:25 pm The few DSTs I've seen had incredibly high costs. Better to pay the taxes instead.

However, I've recently seen some opportunity zone funds that looked considerably better. A few of them return almost 80-90% of your capital over a year 3-8 year period, and then start distributions in the 5-6% range. Sale occurs in year 12, with all proceeds being federally tax-free
I hadn't heard of these (and therefore claim no knowledge!)... but this article seems to suggest that someone like the OP couldn't use a 1031 exchange to move from rental property to QOZ:

"Because these programs have different purposes and requirements, the answer to the question, “can I 1031 into an Opportunity Zone?” or rather, “can an investor use the 1031 Section to exchange into a QOZ?” is a resounding NO. The main reason is because the like-kind exchange has a like-kind requirement. Exchanging from a real estate property (a real asset) into a Qualified Opportunity Fund (a fund) does not fit the “like-kind” definition."

https://www.realized1031.com/blog/can-i ... unity-zone
I'm a bit confused by this article, and a couple of wine glasses down, so bear with me.

You do not 1031 into a QOF. You sell your real estate and calculate your actual gains. Assume you have $100k in basis, and $100k in capital gains after deducting all expenses related to the transaction.

You have 180 days from sale to invest the $100k gains in a QOF. The gains can be from anything. Stocks, bonds, businesses, anything. You get to postpone taxes until 2026 as a result. Most QOFs will do a cash out refinance in 2024 or 2025 to provide you with these funds. A cash out refinance is a not a taxable event. As a result, you do not come out of pocket for the taxes.

Again, you are not doing a 1031x. That does not feature at all in this scenario. I don't know why the article even brings even up, except to confuse people.
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truenyer
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Re: 1031 Exchange to REIT Fund?

Post by truenyer »

unclescrooge wrote: Thu Jan 13, 2022 10:50 pm I'm a bit confused by this article, and a couple of wine glasses down, so bear with me.
I made 1.5x margaritas for dinner, and I'm trying to digest all of this. Thanks everyone for the comments so far.
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unclescrooge
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Re: 1031 Exchange to REIT Fund?

Post by unclescrooge »

truenyer wrote: Thu Jan 13, 2022 10:53 pm
unclescrooge wrote: Thu Jan 13, 2022 10:50 pm I'm a bit confused by this article, and a couple of wine glasses down, so bear with me.
I made 1.5x margaritas for dinner, and I'm trying to digest all of this. Thanks everyone for the comments so far.
Stellar choice of beverage! :beer
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truenyer
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Re: 1031 Exchange to REIT Fund?

Post by truenyer »

unclescrooge wrote: Thu Jan 13, 2022 10:50 pm
HeelaMonster wrote: Thu Jan 13, 2022 10:24 pm
unclescrooge wrote: Thu Jan 13, 2022 9:25 pm The few DSTs I've seen had incredibly high costs. Better to pay the taxes instead.

However, I've recently seen some opportunity zone funds that looked considerably better. A few of them return almost 80-90% of your capital over a year 3-8 year period, and then start distributions in the 5-6% range. Sale occurs in year 12, with all proceeds being federally tax-free
I hadn't heard of these (and therefore claim no knowledge!)... but this article seems to suggest that someone like the OP couldn't use a 1031 exchange to move from rental property to QOZ:

"Because these programs have different purposes and requirements, the answer to the question, “can I 1031 into an Opportunity Zone?” or rather, “can an investor use the 1031 Section to exchange into a QOZ?” is a resounding NO. The main reason is because the like-kind exchange has a like-kind requirement. Exchanging from a real estate property (a real asset) into a Qualified Opportunity Fund (a fund) does not fit the “like-kind” definition."

https://www.realized1031.com/blog/can-i ... unity-zone
I'm a bit confused by this article, and a couple of wine glasses down, so bear with me.

You do not 1031 into a QOF. You sell your real estate and calculate your actual gains. Assume you have $100k in basis, and $100k in capital gains after deducting all expenses related to the transaction.

You have 180 days from sale to invest the $100k gains in a QOF. The gains can be from anything. Stocks, bonds, businesses, anything. You get to postpone taxes until 2026 as a result. Most QOFs will do a cash out refinance in 2024 or 2025 to provide you with these funds. A cash out refinance is a not a taxable event. As a result, you do not come out of pocket for the taxes.

Again, you are not doing a 1031x. That does not feature at all in this scenario. I don't know why the article even brings even up, except to confuse people.
Yeah seems very unrelated. In laws couldn't use 1031 to purchase QOFs, they would still have to pay fees and taxes on the same, and then invest the proceeds in the QOF (instead of diversified, short-term investments).

I'm still researching but it sounds like a 721 UPREIT might be a better option for what they are looking to do, since they won't be continuing to invest in real estate and the shares of the UPREIT can be sold incrementally as they will probably stay in the 0% LTCG tax rate.
SubPar
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Re: 1031 Exchange to REIT Fund?

Post by SubPar »

Chiming back in here for a bit more clarity.

QOFs include both a tax deferral and a potential federal tax-free exit. Realized gains deferred (i.e., invested) into a QOF have delayed recognition until tax year 2026. There was also an incremental basis step-up of 10% and 5% (15% cumulative) applied to the original gain deferral/investment after achieving 5 and 7 year holding periods, respectively, but the deadline to meet those holding periods lapsed at 12/31/21, so moot at this juncture. That said, if a realized gain is invested in a QOF and held for 10 years, any incremental gains while invested are eligible for step-up to FMV at exit of QOF investment. Not all QOFs are created equally, assume heavy fees, understand that QOFs can invest capital differently (beyond just real estate), and the risk list goes on. There's too much to unpack here, and I'd advise against a QOF investment solely for the tax play for a vast majority of people. Sounds like it's not aligned with OP's direction, anyhow.

DSTs are commonly employed by RE shops because it can provide for a cleaner exit. You generally can individually 1031 out of a DST. It's a more tax efficient solution for a syndicated deal than a straight LLC/passthrough type of arrangement, which doesn't allow individual members/partners to 1031 on exit unless the whole deal 1031s and takes them with. It's also a lot cleaner that having a ton of individual investors own a piece of the investment property via TIC ownership, which would allow individuals to 1031 upon exit but is a logistical nightmare for the sponsor. Again, not all DSTs are created equally, fees, risks, yada yada.

721 Exchange/UPREIT is NOT a 1031 exchange, though there are some similarities. REIT shares are not like-kind to a rental property. As the name suggests, UPREIT transactions call upon IRC Sec. 721, which governs, broadly speaking, contributions of appreciated property to a partnership. You can make tax-deferred IRC 721 property contributions to any partnership, not just a REIT OP. However, there are some tax "gotchas" that come into play which can result in a taxable event — disguised sales, debt relief relative to basis of contributed property, etc. For this reason, in-laws need to speak with a CPA and probably an attorney. If OP units are converted to REIT shares, understand that REIT shares have different tax treatment than partnership units in the REIT's OP.

I'm in agreement with others, seems like a boondoggle for what doesn't appear to be a massive tax bill.
HeelaMonster
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Re: 1031 Exchange to REIT Fund?

Post by HeelaMonster »

unclescrooge wrote: Thu Jan 13, 2022 10:50 pm
HeelaMonster wrote: Thu Jan 13, 2022 10:24 pm
unclescrooge wrote: Thu Jan 13, 2022 9:25 pm The few DSTs I've seen had incredibly high costs. Better to pay the taxes instead.

However, I've recently seen some opportunity zone funds that looked considerably better. A few of them return almost 80-90% of your capital over a year 3-8 year period, and then start distributions in the 5-6% range. Sale occurs in year 12, with all proceeds being federally tax-free
I hadn't heard of these (and therefore claim no knowledge!)... but this article seems to suggest that someone like the OP couldn't use a 1031 exchange to move from rental property to QOZ:

"Because these programs have different purposes and requirements, the answer to the question, “can I 1031 into an Opportunity Zone?” or rather, “can an investor use the 1031 Section to exchange into a QOZ?” is a resounding NO. The main reason is because the like-kind exchange has a like-kind requirement. Exchanging from a real estate property (a real asset) into a Qualified Opportunity Fund (a fund) does not fit the “like-kind” definition."

https://www.realized1031.com/blog/can-i ... unity-zone
I'm a bit confused by this article, and a couple of wine glasses down, so bear with me.

You do not 1031 into a QOF. You sell your real estate and calculate your actual gains. Assume you have $100k in basis, and $100k in capital gains after deducting all expenses related to the transaction.

You have 180 days from sale to invest the $100k gains in a QOF. The gains can be from anything. Stocks, bonds, businesses, anything. You get to postpone taxes until 2026 as a result. Most QOFs will do a cash out refinance in 2024 or 2025 to provide you with these funds. A cash out refinance is a not a taxable event. As a result, you do not come out of pocket for the taxes.

Again, you are not doing a 1031x. That does not feature at all in this scenario. I don't know why the article even brings even up, except to confuse people.
Thanks for clarification, and sorry if I introduced any confusion by linking that article. I had (mis)understood that the opportunity zone fund was being mentioned as an alternative to the question in title and OP (1031 Exchange to REIT?)... but still utilizing the 1031 mechanism. I'll happily return to the sidelines and keep learning!
ScaledWheel
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Re: 1031 Exchange to REIT Fund?

Post by ScaledWheel »

I believe the answer is no, but I'll let the more qualified RE investors to chime in.

If I remember correctly, I looked to see if I could do a 1031 into syndication as an LP, and the answer was no.
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tadamsmar
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Re: 1031 Exchange to REIT Fund?

Post by tadamsmar »

truenyer wrote: Thu Jan 13, 2022 6:02 pm Questions:
1) Is this a valid avoidance of investment property capital gains? Or is it a scam?

2) Any experience with this particular company, 1031 Capital Solutions?

3) How does realizing capital gains work if my in-laws die and still have the unrealized capital gain in their estate? Does the standard step-up basis rule apply?

4) Anything else to be aware of?
A 1031 exchange is a valid way to avoid capital gains while selling a property and buying like-kind property while following the 1031 rules. Not sure you can buy just any REIT, but I think there are REIT-like investments that are available and these can be more liquid than owning a rental property.

You avoid the capital gains on the exchange, but you don't avoid the capital gains if you take advantage of the liquidity to sell shares of the REIT to cover your living expenses. At least, that is my understanding. By "liquid" I mean it is easier to sell some, "liquid" does not mean "tax-free".

Never heard of 1031 Capital Solutions. There are lots of companies that help with 1031 exchanges.

I am pretty sure that the standard step-up basis rule applies.

Be aware that the fees can be high and you have to follow the rules. It would be good to look at the IRS tax forms you have to file. The transaction should be squeaky clean, no hint of self-dealing with family members or anyone else.
Last edited by tadamsmar on Fri Jan 14, 2022 11:58 am, edited 2 times in total.
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truenyer
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Re: 1031 Exchange to REIT Fund?

Post by truenyer »

SubPar wrote: Fri Jan 14, 2022 8:41 am Chiming back in here for a bit more clarity.

QOFs include both a tax deferral and a potential federal tax-free exit. Realized gains deferred (i.e., invested) into a QOF have delayed recognition until tax year 2026. There was also an incremental basis step-up of 10% and 5% (15% cumulative) applied to the original gain deferral/investment after achieving 5 and 7 year holding periods, respectively, but the deadline to meet those holding periods lapsed at 12/31/21, so moot at this juncture. That said, if a realized gain is invested in a QOF and held for 10 years, any incremental gains while invested are eligible for step-up to FMV at exit of QOF investment. Not all QOFs are created equally, assume heavy fees, understand that QOFs can invest capital differently (beyond just real estate), and the risk list goes on. There's too much to unpack here, and I'd advise against a QOF investment solely for the tax play for a vast majority of people. Sounds like it's not aligned with OP's direction, anyhow.

DSTs are commonly employed by RE shops because it can provide for a cleaner exit. You generally can individually 1031 out of a DST. It's a more tax efficient solution for a syndicated deal than a straight LLC/passthrough type of arrangement, which doesn't allow individual members/partners to 1031 on exit unless the whole deal 1031s and takes them with. It's also a lot cleaner that having a ton of individual investors own a piece of the investment property via TIC ownership, which would allow individuals to 1031 upon exit but is a logistical nightmare for the sponsor. Again, not all DSTs are created equally, fees, risks, yada yada.

721 Exchange/UPREIT is NOT a 1031 exchange, though there are some similarities. REIT shares are not like-kind to a rental property. As the name suggests, UPREIT transactions call upon IRC Sec. 721, which governs, broadly speaking, contributions of appreciated property to a partnership. You can make tax-deferred IRC 721 property contributions to any partnership, not just a REIT OP. However, there are some tax "gotchas" that come into play which can result in a taxable event — disguised sales, debt relief relative to basis of contributed property, etc. For this reason, in-laws need to speak with a CPA and probably an attorney. If OP units are converted to REIT shares, understand that REIT shares have different tax treatment than partnership units in the REIT's OP.

I'm in agreement with others, seems like a boondoggle for what doesn't appear to be a massive tax bill.
Thanks for this.

QOF: appears to be completely irrelevant to our situation.

DST: You mention one can 1031 *out* of a DST. They are doing this to get out of owning investment property forever.

What I still don't really understand, is how they can get OUT of the DST or UPREIT into cash. The company they spoke to implied they would be able to incrementally sell shares to keep LTCG low each year. How does that work with a DST vs. UPREIT? Don't you need someone to actually want to by the OP shares?

Agreed a tax attorney and CPA review is warranted. Which makes this transaction even less appealing.
Northern Flicker
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Re: 1031 Exchange to REIT Fund?

Post by Northern Flicker »

1031 exchanges are risky. After the property being sold closes, there are deadlines to identify a property and to close on it. If you miss either deadline the gain is realized just as if the property was sold normally, but the seller is out the costs. My understanding is that you basically would be doing a 1031 exchange to a property the UPREIT identifies that they will accept in a 721 exchange, so it is a complex transaction with various failure modes.

When it comes time to fund the DST/UPREIT shares, an unexpected snag could materialize, and one of the deadlines could be missed. When I looked at this, I decided that costs and risks were not worth it. My assessment may not have been fully accurate, but I concluded the following.

Costs that will be incurred include:

-legal and tax accounting consultation fees

-lost interest/opportunity cost on the funds while held at the 1031 intermediary

-1031 intermediary fee ($1200?)

-closing costs acquiring a property the UPREIT identified it will accept in a 721 exchange

-carrying cost associated with acquired property until UPREIT takes possession of it

-ERs and other costs associated with DST/UPREIT

Other risks:

-1031 intermediary declares bankruptcy or experiences other distress while holding the boot (net cash generated) from the property sale

-risk associated with acquired property until UPREIT takes possession of it

-purchase of property for UPREIT fails to close or UPREIT fails to identify property for acquisition and 1031 deadlines are missed

-UPREIT is not well diversified, creating exposure to uncompensated and/or excessive risk and volatility until it is fully liquidated
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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tadamsmar
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Re: 1031 Exchange to REIT Fund?

Post by tadamsmar »

truenyer wrote: Fri Jan 14, 2022 11:22 am What I still don't really understand, is how they can get OUT of the DST or UPREIT into cash. The company they spoke to implied they would be able to incrementally sell shares to keep LTCG low each year. How does that work with a DST vs. UPREIT? Don't you need someone to actually want to by the OP shares?
I don't think the OP quote actually said that you can avoid capital gains getting to cash. You can avoid capital gains getting to a REIT-like investment. After you are there, you have liquidity but you still have capital gains if you go to cash. The wording in the OP quote may be misleading, but its not false if you read it right.

A rental property has less liquidity than a REIT, but the capital gains are taxed the same way when you sell.

The advantage of some of these 1031 exchange instruments is that you get liquidity and you can sell in increments and you don't have to directly manage the property. I don't think they are a route to cashing-out without paying the cap gains taxes.
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truenyer
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Re: 1031 Exchange to REIT Fund?

Post by truenyer »

tadamsmar wrote: Sat Jan 15, 2022 9:35 am
truenyer wrote: Fri Jan 14, 2022 11:22 am What I still don't really understand, is how they can get OUT of the DST or UPREIT into cash. The company they spoke to implied they would be able to incrementally sell shares to keep LTCG low each year. How does that work with a DST vs. UPREIT? Don't you need someone to actually want to by the OP shares?
I don't think the OP quote actually said that you can avoid capital gains getting to cash. You can avoid capital gains getting to a REIT-like investment. After you are there, you have liquidity but you still have capital gains if you go to cash. The wording in the OP quote may be misleading, but its not false if you read it right.

A rental property has less liquidity than a REIT, but the capital gains are taxed the same way when you sell.

The advantage of some of these 1031 exchange instruments is that you get liquidity and you can sell in increments and you don't have to directly manage the property. I don't think they are a route to cashing-out without paying the cap gains taxes.
I never said they said that. I said they said they can incrementally sell shares to keep LTCG low, instead of realizing the gains at once (regular sale).

My question was how you sell the OP shares of the DST? Do they sell it to the 1031 company? Is there a market for that? What if no one wants to buy it?
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tadamsmar
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Re: 1031 Exchange to REIT Fund?

Post by tadamsmar »

truenyer wrote: Sat Jan 15, 2022 10:36 am
tadamsmar wrote: Sat Jan 15, 2022 9:35 am
truenyer wrote: Fri Jan 14, 2022 11:22 am What I still don't really understand, is how they can get OUT of the DST or UPREIT into cash. The company they spoke to implied they would be able to incrementally sell shares to keep LTCG low each year. How does that work with a DST vs. UPREIT? Don't you need someone to actually want to by the OP shares?
I don't think the OP quote actually said that you can avoid capital gains getting to cash. You can avoid capital gains getting to a REIT-like investment. After you are there, you have liquidity but you still have capital gains if you go to cash. The wording in the OP quote may be misleading, but its not false if you read it right.

A rental property has less liquidity than a REIT, but the capital gains are taxed the same way when you sell.

The advantage of some of these 1031 exchange instruments is that you get liquidity and you can sell in increments and you don't have to directly manage the property. I don't think they are a route to cashing-out without paying the cap gains taxes.
I never said they said that. I said they said they can incrementally sell shares to keep LTCG low, instead of realizing the gains at once (regular sale).

My question was how you sell the OP shares of the DST? Do they sell it to the 1031 company? Is there a market for that? What if no one wants to buy it?
If an UPREIT is increasing in value, an UPREIT investor can exchange their units in the trust for shares, which can be sold and cashed out. The majority of UPREITs are publicly traded and are structured like a corporation. When shares are sold and the UPREIT sees profit, the investor will earn the difference between the value of their original share and the value of the share when it’s sold.
https://www.realized1031.com/blog/a-gui ... k-and-more
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truenyer
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Re: 1031 Exchange to REIT Fund?

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