Considering a 1031 Exchange? What You Need To Know For Taxes In 2024 

Property ownership has historically proven to be a solid strategy for wealth accumulation and financial stability. When managed effectively, it can offer the potential for a dependable income stream with minimal oversight requirements. However, to meet their investment goals, many investors find it necessary to recalibrate their property portfolios periodically.

The prospect of trading an existing property for one that aligns better with an investor's strategic objectives is appealing until you factor in the significant tax liability triggered by the sale. It's worth noting that the tax imposed on sale proceeds can reach up to 42.1% at the Federal level, in addition to any state income tax, if applicable.

However, a well-planned 1031 Exchange can provide a way out of this taxing predicament. This provision allows investors to divest from a property without the burden of capital gains tax or depreciation recapture tax, provided the sale proceeds are funneled back into "like-kind" investment real estate of an equal or higher value and that all IRS tax code stipulations are duly observed.

Seven Potential Benefits of a 1031 Exchange Beyond the Scope of Tax Deferral

While tax deferral is undeniably a prime attraction of a 1031 Exchange, it's not the sole potential benefit enticing property investors. This tax provision may also act as a strategic tool to "level up" your real estate investment portfolio, enabling you to strive to achieve your specific objectives.

This could mean acquiring larger properties, procuring assets in more desirable locations, investing in newer builds, potentially generating higher income, striving to mitigate risks, or attempting to meet any other personal investment milestones. Here are seven distinct ways a 1031 Exchange can be used to seek to elevate the value of your single-property investment portfolio:

 1. Transition to a potentially more advantageous property type.

The flexibility of a 1031 Exchange permits investors to diversify their portfolio across an array of property types, even extending to different ownership structures such as fractional ownership of large, income-yielding "institutional" real estate.

This could be a prudent decision if, for instance, an investor with a retail property is facing hurdles due to the surge in e-commerce and may prefer investing in residential buildings in areas with robust population growth. Similarly, a retiree seeking steady income may decide to exchange a multifamily property focused on appreciation for a different property type that yields higher cash flow.

2. Relocate your investment to a more desirable location.

The geographical location of a rental property can profoundly affect its value, cash flow, and potential for appreciation. A 1031 Exchange offers the opportunity to reinvest in properties located in areas offering more favorable conditions, such as states with lower taxes, rapidly growing markets, or more advantageous landlord-tenant laws.

3. Augment the capital re-invested in the next property.

By using a 1031 Exchange, investors can reinvest the entire net proceeds from the sale of their relinquished property into a new one. This tax deferral can be regarded as an interest-free loan from the government, enabling a more substantial investment in the next property, thus potentially leading to increased cash flow and appreciation.

4. Enhance monthly income potential and possible returns.

A 1031 Exchange may serve as a powerful instrument for wealth accumulation, allowing investors to leverage the appreciated value of their property to expand their purchasing power without any tax consequences. With this enhanced buying power, investors are able to target properties with a focus on delivering not only higher but also passive income potential.

Moreover, retaining the full net proceeds from the sale facilitates the acquisition of higher-value properties. The potential to defer capital gains tax across a lifetime of real estate transactions creates a systematic path for personal wealth creation and subsequent transfer to heirs.

5. Strive to diminish the risk on the capital reinvested into real estate.

Given the high entry costs associated with real estate investing, investors often allocate a substantial portion of their net worth to one or two properties, typically within the same locality and of the same property type. Exchanging into a Delaware Statutory Trust (DST) real estate through a 1031 Exchange allows investors to spread their capital across multiple DST properties, thereby diversifying their portfolio across various property types and geographic locations.

6. Lighten tax burdens and complexities for estate beneficiaries.

Employing 1031 Exchanges to defer tax liabilities until an owner's passing can eradicate these deferred taxes for their beneficiaries, thereby amplifying the inherited value for future generations. Upon the owner's passing, the IRS wipes clean capital gains, depreciation recapture, and net investment income tax, a process known as "step-up in basis."

In "community property" states, a surviving spouse is entitled to a full step-up in basis to the fair market value of the properties. This means that the property could be sold immediately after receiving the step-up without incurring any of the aforementioned taxes.

7. Leverage the Power of Passive Investing: Simplifying Property Management with a 1031 Exchange

For seasoned real estate investors seeking to streamline their investment endeavors, the 1031 Exchange offers a golden opportunity. By utilizing this powerful tax strategy, investors can effectively reduce the time and effort spent on property management. Instead, they can seamlessly transition into passive investment options, such as top-tier DST real estate offerings curated by experienced institutional management teams. Experience the benefits of hassle-free ownership while seeking to increase your returns through the 1031 Exchange.

Navigating the Risks: Examining the Downsides of a 1031 Exchange

Yellow paper boat with a compass illustrating the new direction and challenges when navigating the risks and benefits of a 1031 exchange for tax deferral

Before diving into a 1031 Exchange, it's crucial to acknowledge the risks involved in this investment strategy. Real estate, being an illiquid asset class, requires careful evaluation to ensure its suitability for an investor's financial position and objectives. Liquidity emerges as a significant consideration, as investors need to possess sufficient liquid assets to cover unforeseen expenses, such as medical bills. However, there are mitigation strategies available, such as exploring refinancing options or acquiring suitable insurance coverage.

One notable drawback of a 1031 Exchange lies in its inherent complexity. Mishandling the process can result in substantial costs. Hence, it becomes imperative to collaborate with trustworthy 1031 Exchange companies, qualified intermediaries, proficient tax counsel, as well as experienced financial professionals and estate planning attorneys. At Perch Wealth, we prioritize working alongside our clients and their advisors, ensuring a comprehensive understanding of exchange regulations, thorough discussions on associated risks, and flawless execution of the transaction.

Determining the Suitability of a Tax-Deferred 1031 Exchange for Your Needs

Portrait of a female financial consultant advising on the suitability of a tax deferred 1031 exchange for ensuring financial stability

The utilization of a 1031 Exchange as a tax strategy has gained significant traction among investors when selling investment properties. IRS data reveals that over the course of ten years, from 2004 to 2013, a staggering $1.3 trillion worth of properties exchanged hands in more than 2.9 million transactions. The popularity of 1031 Exchanges tends to surge during robust economic periods, as property owners seize the opportunity to leverage the appreciating real estate market.

For real estate investors seeking a flexible solution that aligns with their financial and lifestyle objectives, tax-deferred exchanges offer an attractive proposition. Whether the goal is to reduce active management, enhance income, or minimize taxes for beneficiaries, the versatility of a 1031 Exchange can serve as a valuable tool for attempting to achieve successful real estate investments.

At our firm, we prioritize empowering investors with a comprehensive understanding of the benefits and risks associated with 1031 Exchange options, various locations, market conditions, and how these factors can be synergistically combined to achieve their investment goals.

If you are considering selling your investment property and wish to explore 1031 Exchange options further, we encourage you to reach out to us and speak with one of our licensed 1031 Exchange professionals. We offer complimentary consultations that can be conducted over the phone, via video conference, or in person at one of our offices.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication. 

1031 Risk Disclosure: 

Unveiling the 1031 Exchange Potential for Gold!

Unveiling the 1031 Exchange Potential for Gold!

Investors often aim to use a 1031 exchange as a strategy to postpone the payment of capital gains taxes when selling property. This approach can potentially boost the funds available for reinvestment, thereby enhancing the investor's ability to leverage their investment power. By engaging in sequential exchanges, this effect can be compounded, enabling the potential for portfolio growth. Many investors find this to be a logical approach.

This rationale has led some taxpayers in the past to push the boundaries of what types of property they could exchange, including collectibles, intellectual property, and precious metals. While gains from the sale of stocks and securities have never qualified for such exchanges, there have been cases where other types of property were eligible. Prior to the passage and implementation of the Tax Cuts and Jobs Act (TCJA), coins, artwork, and even antiques were sometimes approved for exchanges.

Nevertheless, even before the IRS tightened its criteria, certain restrictions were already in place. For instance, previous rulings by the IRS rejected attempts to exchange gold for silver, deeming them as not meeting the requirement of being "like-kind." Additionally, the exchange of gold coins for gold bullion was also disallowed.

TCJA Exclusions

Closeup of the Tax Cuts and Jobs Act documents highlighting the exclusions relevant to 1031 exchange and the associated tax benefits in property and investment planning

Following the enactment of the Tax Cuts and Jobs Act (TCJA), there were significant changes to the eligibility of assets for like-kind exchanges. Under the TCJA, the scope of like-kind exchanges was narrowed down to only include real estate. This exclusion meant that assets other than real estate, such as collectibles, intellectual property, and valuable metals, were no longer eligible for tax-deferred exchanges.

In response to the TCJA, the Internal Revenue Service (IRS) took steps to provide further clarification on the statutory limitations and parameters of like-kind exchanges. One such clarification came in the form of Regulation REG-117589-18, issued by the IRS. This regulation aimed to define and specify the types of properties that qualified as real property for the purpose of like-kind exchanges.

According to REG-117589-18, real property, for the purposes of a like-kind exchange, is defined as encompassing various elements. These elements include land, improvements made to land, unsevered crops, natural products of the land, and even the water and air space that are directly adjacent to the land. It is important to note that this definition extends to include permanent structures such as roads and bridges, which are considered integral components of the real property.

By providing this detailed definition of real property, the IRS aimed to establish clear guidelines for taxpayers and investors engaging in like-kind exchanges. These guidelines outlined the specific types of assets that would still qualify for tax-deferred treatment under the revised rules set forth by the TCJA.

How do 1031’s work?

Woman meeting with a financial advisor in office discussing the workings of a 1031 exchange and the tax benefits it can offer in property investment planning

A 1031 exchange is a valuable tool for taxpayers who own real estate and wish to optimize their investment strategy. Let's delve into how it works. Imagine you are a real estate owner with an apartment building located in one state. However, you have a desire to shift your focus to another geographical area or change the composition of your portfolio by eliminating residential assets and acquiring industrial properties instead.

In this scenario, if you decide to sell the apartment building, you will be subject to capital gains taxes. The capital gains tax is calculated based on the difference between your initial purchase price (referred to as the basis) and the current market value at which you can sell the property.

To illustrate, let's assume you purchased the apartment building for $500,000, and its current value is estimated at $1,000,000. This signifies an increase of $500,000 in value (while considering any adjustments to the basis). Depending on your income level, you could potentially face a tax bill of up to $100,000 (assuming you have owned the property for more than a year and qualify for long-term capital gains tax rates).

Now, here's where the 1031 exchange comes into play. By executing a 1031 exchange, you have the opportunity to defer the payment of capital gains taxes and reinvest the entire $500,000 profit into a new property. Instead of paying the taxes immediately, you can utilize the funds to acquire a replacement property that aligns with your investment goals. This deferral allows you to leverage the full amount of your profit for reinvestment, thereby enhancing your investment power and potential returns.

By taking advantage of a 1031 exchange, you can defer the tax liability and maintain a larger pool of funds to invest in new properties. This strategy enables you to strategically reposition your real estate portfolio and pursue investment opportunities that align with your long-term objectives.

Repeating the Exchange Transaction

Engaging in a 1031 exchange does not completely eliminate the obligation to pay capital gains tax. While the exchange allows you to defer the tax payment by reinvesting the proceeds into a replacement property, if you eventually sell that replacement property, the capital gains tax will come into play. At this point, you will not only owe tax on the gain from the sale of the replacement property but also the deferred tax from the original asset.

However, there is an intriguing aspect to consider: the potential for successive exchanges and the opportunity to continuously defer the tax liability. By repeating the 1031 exchange process with subsequent property sales, you can continually defer the capital gains tax and reinvest the funds into new replacement properties. This strategy can potentially enhance your investment power and facilitate portfolio growth over time.

Another noteworthy aspect to explore is the possibility of completely avoiding capital gains tax by holding onto the investment until you pass away and bequeathing it to your heir(s). In this scenario, when the property is inherited, the heir(s) will receive it at a stepped-up value, which is determined by its fair market value at the time of your death. Consequently, the heir(s) will not be liable for any tax on the gains that accrued prior to your passing.

This stepped-up basis allows for a reset in the tax calculation, erasing the previously deferred gains. As a result, your heir(s) can potentially inherit the property without incurring any tax liability on the accumulated gains up to that point. This can be a substantial benefit for striving to preserve wealth and passing it on to the next generation.

By leveraging the strategy of successive 1031 exchanges and potentially utilizing the stepped-up basis upon inheritance, taxpayers can effectively manage their tax obligations and attempt to maximize the benefits of deferring capital gains tax. It is essential to consult with tax professionals and estate planning experts to ensure proper execution and compliance with applicable tax laws and regulations.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication. 

1031 Risk Disclosure: 

Cracking the Code: Can You Use a Loan in a 1031 Exchange?

Leveraging the Tax Code: Exploring Loans in a 1031 Exchange

Section 1031 of the U.S. Code offers a golden opportunity for capital gains tax deferrals on specific real estate sales. As part of the exchange process, you must acquire a property of equal or higher value than the one you're relinquishing.

However, there may arise instances where the proceeds from your relinquished property are either insufficient or not immediately accessible to fund the acquisition of the replacement property. In such situations, securing a loan could be a viable solution to successfully complete the exchange.

Bridging the Gap: Exploring Bridge Loans in a Like-Kind Exchange

In a like-kind exchange, it is important to remember that your replacement property should be of equal or greater value compared to your relinquished asset. However, acquiring a property of greater value may result in a capital gap between the proceeds from the sale of your relinquished property and the funds required to fully finance the purchase of the replacement property.

To navigate this situation, a bridge loan can come to the rescue. Bridge loans offer short-term and expedited financing solutions. They serve as an interim financing option until you can either refinance into a long-term loan or pay it off entirely, providing you with the necessary funds to bridge the gap during the exchange process.


Exploring the Reverse Exchange: Acquiring the Replacement Property First

The most common approach to a like-kind exchange is the delayed exchange, where you sell your relinquished property and subsequently acquire the replacement property within the designated IRS deadlines.

Alternatively, there is the reverse exchange, which allows you to acquire the replacement property before selling the relinquished property. However, in this scenario, you cannot hold both properties simultaneously. To navigate this situation, an Exchange Accommodation Titleholder (EAT) is employed to take temporary possession of either the replacement or relinquished property.

In some cases, you may require a loan to finance the acquisition of the replacement property, as you have yet to receive proceeds from the sale of your relinquished property. Upon selling the relinquished property, you can immediately repay the loan. It is important to note that this type of financing is highly specialized and typically offered by select lenders or financial institutions for short-term purposes.

Proceed with Caution

If you find yourself considering the use of a loan in the situations mentioned earlier, it is vital to exercise utmost caution and carefully select a lender who possesses significant experience and knowledge in handling like-kind exchanges. The intricate nature of a 1031 exchange means that even a minor misstep or confusion during the loan process could raise red flags and potentially expose you to unexpected tax liabilities.

It is worth noting that paying off debt on the relinquished property within the exchange timeframe can trigger adverse tax consequences as well. Therefore, it is crucial to approach the inclusion of debt in your 1031 exchange process with meticulous care and thorough planning.

To mitigate the risks associated with loans in a 1031 exchange, it is highly advisable to seek the guidance of a qualified tax or financial professional. These experts can provide invaluable insights, ensuring that you fully comprehend the potential tax implications and navigate the process prudently.

By working closely with professionals who specialize in 1031 exchanges and diligently considering the implications of incorporating debt, you can safeguard yourself against unnecessary financial burdens and successfully execute a tax-efficient exchange.

Remember, in the realm of 1031 exchanges, knowledge is power, and partnering with knowledgeable professionals will help you make informed decisions that align with your financial goals and minimize any potential tax liabilities that may arise from utilizing loans in your exchange.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Exploring the Two Types of Boot in a 1031 Exchange

For many years, real estate investors have utilized 1031 exchanges as a means of delaying the payment of capital gains tax arising from the sale of investment properties. To achieve complete deferral of capital gains taxes on any profits realized, investors are required to reinvest the full sale proceeds from their relinquished assets. Funds that remain uninvested are categorized as "boot" and attract tax liabilities.

This article delves deeper into two types of boot, namely cash and mortgage boot, and explores how they are generated during a 1031 exchange.

Understanding the Generation of Cash/Equity Boot in a 1031 Exchange

For many investors, the primary objective of engaging in a 1031 exchange is to defer capital gains taxes that result from the sale of investment properties. However, receiving cash from the sale and reinvesting less than the full sale proceeds into the replacement asset can generate a taxable event. For example, if an investor reinvests only $900,000 of a $1 million sale, the remaining $100,000 would be considered cash boot and subject to capital gains tax liability.

The amount of tax liability depends on the investor's income and tax filing status. If the investor is in the 0% tax bracket, there is no tax liability, but if they are in the 15% or 20% bracket, the tax liability on a $100,000 cash boot would be $15,000 or $20,000, respectively.

In addition, if the investor held the asset for a short-term period, the tax liability could be even higher, as short-term capital gains are taxed as ordinary income at the investor's marginal tax rate, which could be up to 37%.


Understanding the Impact of Receiving Cash Boot in a 1031 Exchange: How Tax Liabilities are Determined and the Consequences of Taking Cash Out.

If an investor does take cash out of a 1031 exchange, they can replace it with cash boot paid during the closing on the replacement asset. However, any net cash boot received will always generate a taxable event. It's important for investors to carefully consider the tax implications of taking cash out of a 1031 exchange and to consult with a tax professional to fully understand the potential consequences.

Exploring the Generation of Mortgage/Debt Boot in a 1031 Exchange

In a 1031 exchange, generating boot is not limited to taking cash proceeds out of the exchange. Mortgage boot, also known as debt boot, can be created if the debt on the replacement asset is less than the debt on the relinquished property.

For example, let's say you sold your relinquished asset for $1 million and had a mortgage of $250,000, which was paid off at the close of sale. You then rolled the entirety of the sale proceeds into a replacement asset, but the mortgage on your replacement property was only $200,000. This means that you generated $50,000 in mortgage boot, which is subject to capital gains tax.

To avoid taxation, exchangers who exchange properties with unequal mortgage debt can bring additional cash to the closing table. It's important to note that while you can use cash to offset mortgage debt, you cannot use additional debt to offset any cash taken from the exchange.

Unlike cash boot, mortgage boot doesn't generate an immediate tax liability. Instead, the tax liability arises when the replacement property is sold, and the mortgage boot is realized. It's important to remember that the tax liability on mortgage boot will be based on the capital gains tax rate applicable to the taxpayer's income and filing status at the time of the sale.

It's worth noting that mortgage boot can also be created if the replacement property has no mortgage, or if the mortgage on the replacement property is larger than the mortgage on the relinquished property. In either scenario, the difference between the mortgages would be considered mortgage boot, subject to capital gains tax.


In summary, mortgage boot can be generated during a 1031 exchange when the debt on the replacement asset is less than the debt on the relinquished property. Exchangers can avoid taxation on mortgage boot by bringing additional cash to the closing table, and the tax liability on mortgage boot arises when the replacement property is sold.


In order to avoid generating mortgage or cash boot during a 1031 exchange, the entire sale proceeds from the relinquished property must be rolled over into a like-kind replacement asset, and an equal or greater amount of debt must be swapped. It's essential to avoid trading down, as this typically results in generating cash boot, debt reduction, or both, and may result in a taxable event.

If cash is taken out of the exchange, it's possible to supplement any reduction in mortgage debt during the closing on your replacement property by bringing additional cash to the table. Additionally, bringing cash to the closing table on the replacement asset can "square up" exchange funds.

To fully satisfy the equity and debt requirements on replacement properties and avoid generating cash or mortgage boot, it's recommended to consult with a Qualified Intermediary beforehand. This will help investors understand the exact amounts required to comply with exchange requirements.

In summary, investors must reinvest the entirety of the sale proceeds from their relinquished assets and swap an equal or greater amount of debt to avoid generating mortgage or cash boot during a 1031 exchange. They should also seek to trade up or straight across instead of down, and consult with a Qualified Intermediary to better understand exchange requirements and avoid taxable events.


General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:


Real Estate Syndication & DST 1031 Exchanges

Delaware Statutory Trust (DST) 1031 exchanges are becoming increasingly popular among investors due to the potential advantages of real estate syndication. Real estate syndication is a key aspect of the structure of DST 1031 investments and is a significant factor in their growing popularity as an alternative investment for accredited investors.

What Exactly Is Syndication?

Syndication refers to the process of bringing together a group of investors or organizations to collectively invest in an asset that requires a large amount of capital. In the context of real estate, it means organizing a group of investors to pool their financial resources to purchase one or more properties. Investors are issued beneficial interests or shares in the property, and profits and losses are distributed according to their percentage of ownership.

This concept is particularly relevant when discussing Delaware Statutory Trusts (DSTs) because they allow for multiple investors to own a property for their 1031 exchange or cash investment, unlike traditional 1031 exchanges which typically involve a single investor.

Additionally, DSTs can have a much higher number of investors (usually up to 499) compared to other group investment structures like Tenant in commons (TICs), which have a limit of 35 investors, making them a suitable option for those looking to invest in larger and more diverse real estate assets. However, unlike regular syndications, the DST property or properties have already been acquired by the DST sponsor before being offered to 1031 exchange investors.


The Benefits of Syndication:

One of the major advantages of DST 1031 exchange investments for investors is that they eliminate the challenges and responsibilities of active ownership and management. In DST investments, the sponsor creates the trust and takes on the responsibilities of managing the assets and the business of the trust. These responsibilities can include:

-       Underwriting the Deal

-       Conducting due diligence on the property(ies)

-       Arranging financing

-       Creating a business plan for the property(ies)

-       Finding a property management company

-       Coordinating investor relations and potential monthly distribution checks to investors

-       Delaware Statutory Trust syndication provides investors with a passive ownership structure

In exchange for giving up active management, the passive investor of a DST 1031 property will typically receive 100% of their pro-rata portion of any potential principal pay-down from the loan on the property, thereby potentially building equity. In addition, DST 1031 properties are structured so that the investors in the DST receive 100% of their pro-rata portion of the potential rental income generated by the property's tenants.

Other Potential Benefits To DST Syndication:

Get ready to upgrade your real estate game, folks! With a syndicated Delaware Statutory Trust 1031 exchange, you'll have the chance to snag a piece of some seriously impressive, institutional grade assets.

We're talking industrial distribution centers, medical buildings, self-storage facilities, and even massive apartment communities worth $50 million or more! And the best part? With a typical minimum investment of $100,000, regular investors can get in on the action. It's like a VIP pass to a whole new level of real estate investing.


Want to spread your investment wings? Then a Delaware Statutory Trust (DST) is just what you need! With a DST, you'll have the ability to invest in multiple properties, possibly mitigating your risk and increasing your chances of success.

Plus, you'll be able to choose from a variety of asset classes, like multifamily, commercial buildings, self-storage, medical facilities, and industrial distribution centers. And, with the ability to invest in multiple geographic locations, you'll be able to diversify your portfolio like a pro! And let's not forget, portfolio diversification is a tried and true economic theory, recognized by none other than Nobel-Prize winning economist Harry Markowitz.

Just remember, diversification does not guarantee profits or protection against losses and that investors should read each DST offerings Private Placement Memorandum (PPM) paying attention to the risk factors prior to considering a DST investment.

Investing in commercial real estate can be challenging, as it requires a significant amount of experience and resources. Even for experienced investors, it can be difficult to source, inspect, underwrite, and close on large institutional properties within the timeline of a 1031 exchange.

However, with a Delaware Statutory Trust (DST) syndication, investors can work with the specialized team at Perch Wealth, a national DST expert advisory firm. They have created a platform,, that provides investors with access to a marketplace of DSTs from more than 25 different DST sponsor companies. Additionally, they have custom DSTs available only to their clients and provide independent information on DST sponsor companies as well as full due diligence and vetting on each DST investment.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

What to Know About 721 UPREITs in Relation to DSTs

One of the primary appeals of investing in commercial real estate is that it is a highly tax-advantaged asset class. There are many tools available for investors looking to defer paying capital gains tax upon the sale of real estate assets. The most well-known tool is the 1031 Exchange, which allows an investor to sell a property and roll the proceeds into another like-kind asset such as a building of greater value.

Another option is to roll the proceeds into a Delaware Statutory Trust, or DST, which is an entity used to hold title to investment property on behalf of individual owners, who each have a fractional ownership stake in the DST property.

However there is a third tool worth understanding, one that is often overlooked by investors. That tool is the Section 721 exchange into an UPREIT. Section 721 exchanges are often used in conjunction with DST investments, something we’ll explore in greater detail below.

What is a 721 UPREIT?

An Umbrella Partnership Real Estate Investment Trust, or UPREIT, is a unique structure that allows property owners to exchange their property for share ownership in the UPREIT. The share units will generally have the same value as the property that was contributed to the UPREIT. The UPREIT then owns the property and all administration associated with it.

UPREITs are regulated by Section 721 of the tax code and are often referred to as 721 Exchanges. Section 721 exchanges into an UPREIT do not create a taxable event. Therefore, UPREIT property contributors can defer paying taxes on the sale of property in exchange for UPREIT units, though capital gains taxes on UPREIT units will later be subject to standard REIT taxation.

Section 721 exchanges are different from 1031 exchanges, which require like-kind exchanges and so not allow for ownership exchanges of property. Therefore, while both 1031 exchanges and Section 721 exchanges into an UPREIT can be attractive, they should be used in different circumstances.


How do UPREITs work?

In a typical UPREIT structure, all REIT properties are purchased and owned directly or indirectly by its “umbrella partnership” – sometimes referred to as the “operating partnership” or “OP”. The properties are operated and managed within the OP, of which the REIT acts as the sole general partner as well as a significant limited partner.

With a standard Section 721 exchange, an owner sells their property just as they would if selling for cash. However, instead of selling for cash, they sell their interest in the real estate to the UPREIT operating partnership. Since the OP entity is not considered an “investment company” for tax purposes, the contribution is not treated as a sale and capital gains may therefore be deferred.

The seller then receives OP Units instead of cash in exchange. With these transactions, the seller is also allocated a certain percentage (or dollar amount) of debt for the OP as well for tax purposes.

In practice, however, most REIT managers are not interested in the property individuals want to sell. Therefore, many Section 721 exchanges often occur through a two-step process involving a DST.

How to Utilize UPREITs as Part of a DST Transaction

Because most REITs do not want to purchase an individual’s property, most sellers will utilize a DST as a sort of “middle man” before utilizing a 721 Exchange.

Through this process, an owner sells their relinquished property and to the extent there are capital gains, those capital gains are reinvested into a DST using a 1031 exchange. The seller then retains an ownership stake in the DST.

Some DSTs exist with an UPREIT structure that allow investors to convert their DST ownership stake into shares of said UPREIT. Through the UPREIT option, investors can exchange their DST interests for OP Units in a REIT at the time the REIT exercises its option to purchase the DST property. These OP Units can later be converted into REIT common shares at the owner’s discretion.

The Pros and Cons of Utilizing UPREITs

There are many benefits associated with 721 UPREIT exchanges, including:

·      Tax Advantages: The 721 exchange allows investors to defer paying capital gains tax on appreciated real estate in exchange for shares of an operating partnership (“OP Units”). Capital gains continue to be deferred until the investor sells their OP Units, converts the OP Units to REIT shares, or the property contributed to the UPREIT is sold by the acquiring operating partnership.

·      Increased Liquidity: Real estate is generally considered an illiquid asset class. It cannot be purchased and sold with the click of a button, as is the case with stocks, bonds and other equities. However, transactions conducted through a 721 exchange allow investors to preserve liquidity by converting some or all of their OP Units into shares of the REIT, which can then be traded more easily (although doing so then creates a taxable event).

·      Portfolio Diversification: By selling individually-owned property and exchanging into an UPREIT, an investor benefits from greater portfolio diversification. REITs usually hold title to multiple assets, including different property types and in disperse geographies. Investing in a REIT is one way to mitigate risk rather than having all of one’s capital tied up in a single property.

·      Passive Income Potential: 721 Exchanges allow for investors to sell their property and essentially, hand off all property management obligations to the REIT operating partnership. This allows an individual to switch from being an active investor to passive investor. So long as they have taxable income, REITs are obligated to pay dividends to their shareholders and therefore, those who relinquish their individual property can continue potentially collecting passive income well into the future.

·      Estate Planning: One of the primary reasons people utilize 721 exchanges is for estate planning purposes. Upon death, REIT shares can be equally divided among heirs, who may elect to hold or liquidate their respective shares. These shares are passed down through a trust, which gives the beneficiaries of the trust a stepped-up basis that allows them to avoid paying capital gains taxes and depreciation recapture.

Of course, there are some downsides that come with utilizing 721 UPREIT exchanges, including:

·      Inability to Make Future “Like-Kind” Exchanges: When an investor relinquishes their property into an UPREIT, they receive OP Units in exchange. These REIT shares cannot be exchanged for other “like-kind” real estate in the future. If REIT shares are sold, they become subject to capital gains tax and depreciation recapture.

·      Lack of Control: Those who sell property using a 721 Exchange become passive investors; they no longer have a say in how properties owned by the REIT are managed. In fact, individuals no longer own real estate directly at all. All properties are exclusively owned by the REIT, with investors having an ownership stake in the operating entity overseeing those properties.

·      Greater Susceptibility to Market Swings: Unlike real estate assets held directly, which are illiquid in nature and have a low correlation with the stock market’s daily ebbs and flows, REIT shares can be more volatile if the REIT is traded publicly on an exchange. When the stock market contracts, REIT investors will often sell their shares much faster than someone would be able to sell individually-owned property. This can cause REIT values to plummet, even if only momentarily. Publicly-traded REIT shares tend to be highly correlated with the S&P 500 and therefore, are more susceptible to market swings.


Is an UPREIT right for you?

Section 721 UPREIT transactions are limited to “accredited investors” as defined by the U.S. Securities and Exchange Commission. In order to qualify as an accredited investor, an individual must meet certain income or net worth requirements.

Assuming an investor is accredited, the best candidates for UPREITs are generally those who:

·      Own real estate with a low cost basis who would otherwise be subject to significant capital gains taxes upon sale;

·      Want to sell family-owned properties with multiple heirs involved;

·      Are seeking greater portfolio diversification, especially if a substantial portion of their wealth is currently tied up in a single asset; and

·      Want to transition from active to passive real estate investing, as UPREITs allow investors to hand off property management while continuing to seek passive income.

1031 exchanges typically garner the most attention in relation to how real estate owners can defer paying capital gains taxes. However, UPREITs are another potentially great solution for owners looking to dispose of property while simultaneously striving to preserve their capital.

If you’re interested in selling your property, contact us today to determine if a 1031 exchange into a DST and/or a 721 Exchange may be right for you.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

•         There is no guarantee that any strategy will be successful or achieve investment objectives;

•         Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

•         Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

•         Potential for foreclosure – All financed real estate investments have potential for foreclosure;

•         Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

•         Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

•         Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

Deferring Taxes in QOFs, 1031 Exchanges & DSTs

Investors looking to defer, reduce or exclude capital gains have various options for investing in real estate. Understanding the differences between each investment vehicle is imperative to developing an investment strategy that will help you strive to meet your financial objectives. To help provide direction, we have outlined the tax differences in investing in a Qualified Opportunity Fund (QOF), a Delaware Statutory Trust (DST) and a 1031 exchange—three of the most common investments relied upon today.

QOFs Versus 1031 Exchanges

QOFs and 1031 exchanges are some of the best-known investment options for deferring taxes. At first glance, it seems as though the tax benefits associated with investing in a QOF are similar to those realized when reinvesting through a 1031 exchange. Notable differences, however, do exist.

• Only proceeds from the sale of real estate can be rolled into a 1031 exchange, while capital gains from other assets, including stocks, bonds and business equipment, can be reinvested into a QOF.

• QOF investors are not required to identify a replacement property within 45 days or use a qualified intermediary. Instead, they are given 180 days to reinvest the proceeds from the sale of their prior assets.

• To be eligible for a full 1031 exchange tax deferral, investors must invest the value (equity and debt) of their investment realized upon sale. When investing in a QOF, only gains must be invested.

QOFs Versus DSTs

Another popular way to potentially defer paying capital gains tax on the sale of real estate is by reinvesting the proceeds from the sale of the asset into a DST. DSTs are eligible for the same tax benefits as 1031 exchanges, which means investors can use DSTs as a vehicle for deferring capital gains tax, sometimes indefinitely.

Compared to QOFs, DSTs have similar tax benefits; however, investors should be aware of some differences between the two investment vehicles.

• Investments in QOFs are intended for ground-up and value-add real estate. DSTs are typically stabilized, cashflow-generating properties.

QOF capital gains deferred through 2026 are eligible for a partial step-up; they must be held for at least 10 years to be excluded. DST investments are not eligible for exclusion but may be deferred indefinitely. The asset basis is stepped up to fair market value at the time of the investor’s death.

• Only proceeds from real property may be reinvested in a DST, whereas the short- and long-term gains on the sale of nearly all assets can be reinvested in a QOF.

• QOF investments have strict geographic boundaries; DST investments have none.

• DSTs must identify a property or portfolio of properties before accepting investments, while QOFs have a “blind pool,” meaning that capital deployment is flexible if 90% of assets remain in a Qualified Opportunity Zone (QOZ).

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Which Investment Vehicle May Be Right For You?

QOFs, 1031 exchanges and DSTs all have their pros and cons. So, when determining which investment vehicle may be best for you, consider the following.

• How much authority do you want to have over how funds are invested? With a QOF, investors are often unaware of how their capital will be invested; however, in a 1031 exchange or DST, assets have already been identified.

• Is a step-up in basis important to your legacy planning? When an investor passes away, any investment made in a QOF will not receive a step-up in basis to market value; therefore, heirs will pay the tax consequence upon selling ownership in the QOF.

• Has the asset you are planning to sell already been depreciated? Unlike 1031 exchanges and DSTs, QOFs do not allow you to defer depreciation recapture on the underlying asset upon sale.

Understanding Risk

No matter your investment strategy, whether it is in a DST, QOF or 1031 exchange, or whether your investment is leveraged or not, risk is always involved. There is no guarantee that your goals will be met, and investors are always at risk of losing some, if not all, of their cash flow or investment.

The income stream, the depreciation schedule, the investment itself or a change in the tax code may affect an investor’s tax benefits (e.g., a change in an investor’s tax bracket resulting in immediate tax liabilities).

Furthermore, for those considering investing in a QOZ, additional risk must be considered. As newer investments, most have little or no operating statements; returns and gains aren’t generally seen until the property is sold or refinanced; liquidity is limited; valuation of assets can be difficult; and as unregistered securities, the regulatory protections of the Investment Company Act of 1940 are not available.

Additionally, QOZs require speculative development of ground-up or heavy value-add projects in economically distressed areas. Opportunistic real estate deals such as these can be riskier than investing in a potentially stable, cash-flowing asset through a DST. Moreover, investors are always required to invest pledged capital, no matter the performance of the asset.

The differences between these investment options can create uncertainty, even with a seasoned investor. Therefore, it is highly recommended that investors considering investments in real estate or alternative real estate funds speak with a qualified professional.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves the risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

Planning Correctly For A 1031 Exchange From A DST

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.

Tips To Get Ready For the Exchange

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.


Prepare For the 45-Day ID Period

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 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.

Starting the Exchange Selection Process

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.

Who to Consider for a 1031 Exchange: BD vs. RIA

Investors might choose to work with a broker-dealer (BD) or registered investment advisor if they want to speak with a knowledgeable expert about their 1031 exchange investment alternatives (RIA). Although both BDs and RIAs can frequently provide comparable services, the breadth of their knowledge and costs can differ greatly. In this post, we clarify the distinction between a BD and an RIA in the hopes of assisting you in selecting the expert who is more suitable for your needs.

What's the distinction?

RIAs are people or businesses that primarily concentrate on providing general financial advice, managing client accounts, and carrying out stock trades on behalf of clients. RIAs often charge annual fees that are calculated as a percentage of the assets they manage for their clients' benefit.

BDs, on the other hand, primarily assist their clients in investment transactions. BDs typically charge a one-time fee rather than a recurring cost for each transaction they assist because their fees are largely commission-based.

A 1031 Exchange's Relevance

Work with a certified expert, such as a broker-dealer or a registered investment advisor, if you're an investor looking to sell your real estate and exchange it for a like-kind alternative investment.

Trading from a real estate asset into a Delaware Statutory Trust (or "DST") is one of the most prevalent types of a 1031 exchange in use today.

An investor can purchase an ownership interest in a DST, which is a legally recognized real estate investment trust. Beneficiaries of the trust are investors who own fractional ownership; they are regarded as passive investors. … Retail assets, multifamily properties, self-storage facilities, medical offices, and other types of commercial real estate are among the properties owned in DSTs that are deemed to be of "like-kind."


Investors can sell their real estate and purchase a suitable investment while postponing capital gains thanks to these one-time transactions.

Investors can also use the exceptional financing secured by a DST sponsor, receive possible management-free passive income, access institutional quality assets they might not otherwise be able to purchase, and limit their liability in the investment by trading into a DST.

Instead of comparing a DST to an equity acquisition, it is ideal to compare it to a real estate exchange because there is a big difference between the two in terms of how much an investor should spend in fees.

Preventing Possibly False Claims

Why is this significant when choosing between working with an RIA or a BD?

Many claims are now frequently made in an effort to attract investors for 1031 exchanges or people wishing to invest money in DSTs. Since their commissions are eliminated, several RIAs assert that working with them is less expensive than working with a BD. This assertion, however, disregards the fact that RIAs frequently charge continuous annual fees to their clients. Over time, this fee can end up costing you more. It's crucial to conduct research to determine the recurring fee and, if any, additional services you are receiving in exchange for that cost. It's important to remember that the recurring charge is often determined as a percentage of the assets' value. This implies that you will pay more if the item increases in value and less if it decreases in value. As a result, it is impossible to estimate how much the advising fee will actually cost over time.

Let's examine a case in point.

Consider a scenario in which an investor switches from a retail property to a DST, an investment that typically lasts for five to ten years before being sold and allowing the investor to make another transaction. Let's say the investor contributes $1 million to the DST. Let's compare the prices of a BD and an RIA now. If the BD charges a 6% commission on the investment, the commission on the transaction will be $60,000.

Contrarily, an RIA levies fees as a percentage of the assets under management (AUM), which in this case is $1 million. Let's now assume that the RIA fee is 1.5% of the AUM (assets under management). The investor would then pay the RIA $15,000 annually for the investment (assuming the asset value remains stable). The investor would spend between $75,000 and $150,000 for the exchange based on the typical holding time of a DST (five to 10 years)! Of course, there is a chance that the charge will be smaller if the DST sponsor leaves early or if you are given the chance to sell or swap early.

Compared to registered investment advisors, broker-dealers may be less expensive.

The aforementioned scenario only illustrates how dealing with a BD might be less expensive than working with an RIA by comparing the costs of the two types of advisors. In the example above, working with an RIA costs the investor 50% to 250% more than working with a BD. If an investor had millions to invest, just imagine.


Pay No Annual Fees for Passive Investments Such as DSTs and Other 1031 Exchange Investment Options

DSTs and other 1031 exchange investment choices are set up as management-free investments, so neither the investor nor the person acting on their behalf in the transaction is responsible for managing the investments. Sponsors are absolutely passive because they manage these alternative investments on behalf of their investors. When your DST investment is already being managed for you, why would you pay an RIA to "manage" it?

Recognizing Your Options

Investors should do their homework before making any investments to fully grasp the possibilities and costs involved. An investor should evaluate who has greater expertise in the investment and whose fees are more in line with the type of investment they are considering when deciding between an RIA and a BD. These inquiries might aid investors in safeguarding their capital and themselves in subsequent investments.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

How Should I Invest My Wealth in 2022?

The present market offers financial backers a plenty of speculation valuable open doors across various ventures. While having different choices can assist with further developing a singular's venture methodology, they can likewise cause vulnerability, bringing up issues about which speculation suits the individual's monetary targets. So you may be wondering where do I invest my wealth in the current economy.

To help give guidance on which investment is ideal for you, we will frame the fundamental components of the present most wanted speculations and go over the upsides and downsides of every one.

For this article, we will isolate the data into two segments. To start with, we will take a gander at more conventional speculation choices, like putting resources into stocks or bonds. Then, we will audit elective speculations. Albeit less known among the present financial backers, elective choices offer potential advantages that numerous customary speculations need.

Customary Investment Options

By and large, financial backers have depended upon a 60/40 portfolio piece to assist them with accomplishing their long-term monetary dreams, for example, fabricating a savings for retirement, reimbursing a home loan early, or paying instructive costs for their youngsters. As indicated by this model, a financial backer's portfolio ought to comprise of about 60% stocks and 40 percent bonds. This model generally would in general convey financial backers stable development and pay to assist them with meeting their monetary objectives.

Stocks, or values, are protections that address partial possession in an enterprise. Financial backers purchase stocks and depend upon the organization's development to expand their abundance after some time. Also, stocks may offer financial backers profits - or installments to investors - for recurring, automated revenue. Then again, bonds are obligation protections presented by a company or government substance hoping to raise capital. Not at all like stocks, bonds don't give financial backers proprietorship freedoms, yet rather they address a credit.

The largest contrast among stocks and securities is the manner by which they produce benefit: stocks should appreciate in esteem and be sold later on the financial exchange, while most bonds pay fixed interest after some time.

While stocks offer financial backers the potential for more significant yields than securities, securities are by and large considered a safer venture. Therefore, numerous financial backers go to venture reserves, like common assets, trade exchanged reserves, or shut end assets, to broaden their portfolios while keeping a 60/40 arrangement. These venture subsidizes arrange capital from various financial backers, which is then, at that point, put into an arrangement of stocks and bonds. Venture subsidizes offer financial backers the possibility to moderate risk through a more adjusted portfolio.

A Change in the Portfolio Model

Because of progressing unpredictability in the stock and security market, rising costs for wares, and high valuations, the customary 60/40 portfolio model is done serving financial backers in a similar way it once did. Therefore, numerous monetary specialists are presently suggesting that financial backers broaden their portfolios with 40% elective ventures to help possibly advance their monetary position.


Elective Investments

While various kinds of elective ventures exist, we will zero in on elective land speculations because of the advantages they might perhaps offer financial backers in the present market.

Why Invest in land?

Land has for quite some time been one of the most sought-after open doors for financial backers. As a restricted ware, land has generally managed the cost of financial backers the potential for long haul security, fantastic returns, recurring, automated revenue, charge benefits, and a fence against expansion. Notwithstanding, land speculations additionally accompany specific drawbacks. Beginning in land effective money management ordinarily requires a broad measure of capital and solid financials for the individuals who are utilizing obligation.

Besides, land by and large requires dynamic support - financial backers are expected to deal with their resources for guarantee ideal execution. In this manner, elective interests in land have begun filling in prominence among the venture local area. While they can frequently offer comparable benefits to land money management, they convey a uninvolved open door, meaning they have zero administration obligation. The following are a couple choices for financial backers looking for elective land speculations.

Real Estate Investment Trusts

A real estate investment trust (REIT) is an organization that possesses and normally works pay creating land or related resources. REITs consolidate all resource types, including multi-family, retail, senior living, self-capacity, cordiality, understudy lodging, office, and modern industrial properties, to give some examples. Dissimilar to other land ventures, REITs by and large buy or foster land for a drawn out hold.

Financial backers depend on a REIT's comprehension expert might interpret the housing business sector to broaden and balance out their portfolios. Numerous REITs are public, implying that all financial backers, including unaccredited financial backers with restricted capital, can put resources into them.

While public REITs convey many benefits related with customary land effective financial planning - like pay potential, broadening, and conceivable expansion security - they additionally accompany some particular inconveniences. For instance, REITs frequently experience slow development. Since REITs should pay out at least 90% of their benefits in profits, new acquisitions and improvements are restricted. To decide the strength of a venture, potential financial backers ought to lead a reasonable level of investment - with the help of a specialist on the REIT before buying shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a lawfully perceived land speculation trust where financial backers buy a possession interest, or partial proprietorship, in a land resource or land portfolio.

DSTs are usually depended upon by 1031 trade purchasers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

As well as giving financial backers recurring, automated revenue potential through an administration free venture, DSTs empower financial backers to put resources into institutional quality resources for which they wouldn't in any case haveaccess. These resources might have the option to convey more significant yields and longer-term strength.

Moreover, the obligation designs of DSTs are appealing to numerous financial backers. Individuals who put resources into DSTs have restricted obligation equivalent to their ventures; nonetheless, they can exploit the frequently alluring funding gotten by the support organizations. Sadly, just licensed financial backers can put resources into DSTs.

Opportunity Zones

Opportunity zones (OZs), characterized by the IRS, are "a financial advancement device that permits individuals to put resources into upset regions in the United States. This incentive’s intention is to prod financial development and work creation in low-pay networks while giving tax breaks to financial backers." OZs were presented. under the Tax Cuts and Jobs Act of 2017, and financial backers keen on putting resources into an OZ should do as such through a qualified opportunity fund (QOF).

QOFs can be an eminent choice for financial backers because of their tax breaks, which rely upon the period of time a financial backer holds a QOF venture. We have recently made sense of these advantages, which we allude to as OZ triple-layer charge motivators. Here is a depiction of the tax cuts a QOF offers a financial backer:

● Deferral: Those who rollover their capital increases into a QOF can concede capital earn respect from the first speculation until December 31, 2026.

● Decrease: how much capital increase perceived from the first speculation is diminished by 10

percent in the wake of accomplishing a five-year holding period, as long as that five-year holding period is accomplished by December 31, 2026.

● Avoidance: Long-term financial backers are qualified to pay no expense on the enthusiasm for their QOF venture upon attitude of that speculation, no matter what the benefit size, assuming the resources held in that QOF are held for no less than 10 years.

While opportunity zones are viewed as an unsafe speculation, provided their motivation, they might possibly convey financial backers better yields when contrasted with other elective land venture choices.


Interval Funds

An extra elective venture choice worth focusing on are interval funds. These assets are not restricted to land yet rather can be utilized to put resources into numerous protections, including land. Comparable to recently referenced reserves, these arrange investor money to put resources into various protections. Be that as it may, they offer a lower level of liquidity. Rather than having the option to exchange shares everyday, financial backers are normally restricted to selling their portions at expressed spans (i.e., quarterly, semi-every year, or yearly). The advantage of stretch assets is the adaptability they offer the assets - they permit the asset to execute longer-term procedures, making the potential for a more steady venture.

Accordingly, interval funds will generally convey better yields and a more broadened an open door. Presently, where do I put away my cash today? While the above data offers a depiction into the upsides and downsides of different speculation choices, you ought to think about extra perspectives. As opposed to promptly attempting to distinguish which choice is ideal for your purposes, the critical focal point here is to comprehend that the present market offers a variety of venture choices that were already obscure to quite a large number. Financial backers can broaden past stocks and bonds, which might potentially give them more significant yields while trying to relieve risk. To foster a venture portfolio that meets your monetary objectives, we encourage you to talk with one of our monetary experts.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: