The recent uncertainty in the global stock market has many investors looking for more conservative and less volatile investments. On top of that, traditional investment instruments like stocks and bonds are similarly not looking very attractive because of their recent lackluster yield performances. Therefore, more and more investors are attracted to Real Estate Income Funds.
While Perch Wealth is best known for its expert-level knowledge of Delaware Statutory Trust & 1031 exchange investment strategies and opportunities, the company also has a great reputation for working with nationally recognized real estate sponsors to source and structure All-Cash/Debt-Free Real Estate Income Funds for accredited investors.
Now, any investor who is thinking about selling an investment property may look into a 1031 Exchange, which is a provision in the IRS code that allows for tax benefits. This exchange allows the sale of an investment property and the reinvestment of the proceeds into a similar property, postponing capital gains and other taxes until a later date.
However, the process must be completed within 180 days and the funds must be held with a Qualified Intermediary to maintain eligibility for the exchange. If the funds are touched during the process, the exchange becomes invalid and the taxes must be paid.
Likely the most challenging aspect of the 1031 exchange process is the initial 45-day identification period. During this period, investors must formally identify the property or properties they intend to purchase, and they must do so within a matter of 6 weeks.
To avoid tax liability, the identified property or properties must have equal or greater value than the relinquished property. There are two primary ways to identify properties: the 3 property rule, where up to 3 separate properties can be identified regardless of their value, or the 200% rule, where an unlimited number of properties can be identified as long as their combined value does not exceed 200% of the value of the relinquished property.
To summarize, investors should keep in mind that the 1031 Exchange process must be completed within 180 days, starting from the sale of the property and the escrowing of the proceeds with a Qualified Intermediary, and including the identification and closing of the new property. Additionally, the equity and debt of the new property should be equal or greater than the relinquished property.
To reduce stress during the 45-day identification period, it is recommended to start searching and selecting potential like-kind properties before officially closing on the relinquished property. This way, the 45-day time clock starts ticking after the identification process has already begun.
Delaware Statutory Trust (DST) properties offer a convenient option for 1031 Exchange investors as the underlying real estate is already acquired and owned by the trust, making the purchasing process quick and seamless. Additionally, DSTs can serve as a back-up or contingency plan in case the initial replacement property falls through.
While the Real Estate Sponsor Company may have completed their due diligence on a DST property, it is still important for investors to conduct their own research. It is recommended to review current DST properties offered on the www.perchwealth.com marketplace, and work with a Perch Wealth Registered Representative to evaluate the different options and find the best solution for their specific situation. It is important to remember that each investor's needs are unique and the due diligence process is crucial to make an informed decision.
It is advisable to start the screening process for DST investments around 30 days before closing on the relinquished or downleg property. This is because DST offerings have a limited availability and are capped at a specific value, and once the last dollar is invested, the offering is no longer open for further investment. Typically, DST offerings are available for purchase for 1-3 months, so starting the selection process too early may result in missed opportunities.
By starting the process approximately 30 days before closing, investors will have a better chance of identifying viable options that they can reserve and invest in as soon as the funds become available, allowing them to complete the 1031 exchange efficiently and within the 45-day identification period.
By keeping these guidelines in mind, investors can greatly reduce stress associated with a 1031 exchange, and potentially start earning cash flow from their investments immediately. The quick and seamless purchase process of DSTs compared to traditional real estate transactions can be a big advantage.
For more information on the 1031 exchange and DST selection process, it is recommended to reach out to a Perch Wealth's Registered Representative or visit their website for more resources.
Perch Financial LLC and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA/SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure:
No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.
Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.
Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.
NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.
