Besides tax deferral, the most notable aspect of a 1031 exchange transaction is identifying and purchasing the right replacement property. There are many different types of properties that qualify for a 1031 exchange including multifamily apartment buildings, residential rental property, office buildings, land, retail establishments, industrial facilities, restaurants, hotels, educational, daycare, medical offices, hospice, and other business properties.
You can sell a single-tenant retail property and buy a warehouse; sell land for development and buy a multiplex; or sell commercial real estate and buy raw land – all of these are considered “like-kind” 1031 exchange properties. To obtain a list of these properties in the country, call us at (631) 275-1444 or email us at email@example.com.
The two most common ownership structures for 1031 exchanges are a Tenancy-in-Common (TIC) and a Delaware Statutory Trust (DST). Both of them can be used to hold like-kind transactions in real estate for the sole purpose of a 1031 exchange.
The TIC structure dates from the earliest common law and used to be the go-to vehicle for multiple-owner 1031 exchanges in the US. Based on this, in the last few years, most exchangers have started to use the DST entity because it is simpler and more flexible.
Both TICs and DSTs are available as pre-packaged investments, with non-recourse financing and management options in place. They both offer excellent benefits in terms of financing, acquisition, and managing of real estate ownership. At Pivot Professional Partners, we specialize in helping people generate passive investment income through 1031 property exchanges and create an alternative investment portfolio.
Note: Some clients ask whether you must have equal or greater debt on your 1031 exchange replacement properties. The answer is no. It's a common misconception.
TIC is a co-ownership structure under which several exchange investors pool their money to buy a single property. These investments are usually made in projects such as office buildings, shopping centers, and apartment houses. This is a fractional ownership where owners share a property title and there is no limit to the number of owners that hold the title.
This type of investment is very attractive to investors who don’t actually want to manage real estate. With TIC, they have access to a predictable rate of return on a secure investment vehicle. The property is managed by professionals. TIC properties typically bring in cash returns of 6-7%.
Despite the name, the Delaware Statutory Trusts (DST) has nothing to do with investing in the fine state of Delaware. DSTs are a legal structure that allows smaller (but accredited) investors to access larger, institutional-grade properties by contributing their equity along with a group of other solo investors.
Since DST is used to hold title to investment real estate, it's a little bit like a Limited Liability Company (LLC). Pertaining to this, a DST 1031 property is eligible as a “like-kind” replacement property, unlike an LLC. This qualification falls under the Internal Revenue Code Section 2004-86. DST investments are offered and managed by firms that perform several functions on the investors’ behalf. The benefits of a DST property for an investor include:
With the resurgence of 1031 exchanges in the past decade, an increasing number of real estate investors are seeking passive income and portfolio diversification strategies. Whether you are an accredited investor (high annual income or net worth) and want to purchase a DST replacement property, or you’re a non-accredited investor looking for predictable monthly income through a TIC property, our tax, and legal advisors are here to help.
We have a dedicated lineup of properties ready for you to earn monthly cash flow distributions from, without the pitfalls of direct property ownership, such as ongoing landlord duties. To schedule a consultation or to help identify replacement property, call us at (631) 275-1444 or send us a message online.