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Let us HELP you get and close a 1031 listing – Ten Examples

1) Debt Approach: As you know, you need to replace the same amount or more debt in a 1031 transaction. Many realtors run into a roadblock when trying to get financing on the replacement / up leg property. Imagine, you have, an apartment owner with a building worth $5 million with a $2.5 million in debt or 50% loan to value. If that investor cannot get approved for a $2.5M loan, then most likely the owner will not sell, and you will not get the deal. This is where we can help you close and get your hard earned commission. Our securities sponsors typically take one loan on a Delaware Statutory Trust (DST) property vs. qualifying each individual investor due to the time and costs associated to approve up to 500 investors for a DST. A credit check is not required for each investor. We can now help you on the replacement property transaction with providing DST with debt already placed on the transaction.

2) Insurance Approach: One of the most common ways to ID replacement properties in the “3 Property Rule” which states someone can ID up to 3 properties with 45 days. We find that many realtors typically only ID one property for replacement which can be a disaster if the property falls out of escrow for various reasons including financing, inspection, etc. We can serve as a “backup” to your # 1 property ID by providing DST properties to assure the 1031 is completed.

  • Property 1: Realtor choice
  • Property 2: DST provided by Certified Financial Planner
  • Property 3: DST provided by Certified Financial Planner

3) Partials / Leftovers Approach: It’s typical that a realtor runs into a situation where the exact amount is not identified in a 1031 transaction. For example, you may run into an exchange situation where the relinquished property sold for $2M and the property identified was valued at $1.8M. This will result in a taxable boot event of $200k to the not‐so‐happy seller. Keep in mind that the minimum for DST is only $100,000. Results are a 100% 1031 with no tax boot paid and a happy client.

  • Property 1: $1.8M (Realtor)
  • Property 2: $100k DST
  • Property 3: $100k DST

4) Passive Management Approach: When a DST exchange is elected, the Sponsor becomes the “Trustee” and property manager and the investor becomes a passive income owner without the Terrible T’s associated with property management: Tenants, Toilets, Trash, Termites, Teenagers, Telephone calls, and Taxes. A DST will allow you to have more Terrific T’s, more freedom of Time and Travel with the kids or grandkids. We can set up potential monthly direct deposits, handle all property management and provide a 1099 at the end of each year. Currently, based on the equity from the exchange, the net “take‐home” income has historically been in the 5% range and more good news is a great deal on the income is not currently taxable due to the mortgage interest deduction and property depreciation.

5) Diversification Approach: Investing in a DST can provide wide diversification by owning interest in multiple properties in multiple states in a professionally managed portfolio. Diversification seeks to reduce risk. It is likely difficult to ID 3 properties in 3 states within 45 days. We believe a DST can be a good solution to help with diversification.

6) Sidelines Approach: Many realtors have clients that will not sell until they have found the right replacement property which is stressful for the realtor. Situations occur where the seller turns down everything presented for various reasons. When the seller is shown high quality, institutional properties in DST’s, many times it gets the seller off the sidelines – property is sold, and exchange completed.

7) Swap to You Drop Approach: A DST is set up with to be exchanged repeatedly with a step‐up in the tax basis upon death and no taxes to heirs.

8)Estate Planning Approach: Imagine an investor who owns an apartment property has 2 children. When the investor dies, the children are faced with decisions on the apartment property they wish to keep. The children may have different financial situations and income needs and what to do with the property can lead to disagreements. With an exchange into a DST, they have tax benefits and improved income potential and upon the eventual sale of the DST, each will be able to reinvest in a new DST or cash out.

9) Access to Quality Approach: Many investment properties are run down or low quality investments. Investing in a DST, you will get access to high-quality institutional grade properties that typically have long‐term leases and the potential for high occupancy rates.

10) Low Minimum Approach: Where else can you find an exchange replacement property for a low as$100,000?

Financial Designs, Ltd. has been involved in over 400 1031 security transactions since 2004. We have supported many residential and commercial realtors in providing replacement 1031 properties as a backup to help in the listing and closing of 1031 transactions. This has helped realtors secure a listing and have assurance of a 1031 closing. If we can assist you, or if you would like to plan a visit or a phone call, or zoom, please let us know.

It is important to note that DST investing is subject to specific eligibility criteria, and only individuals who meet the definition of an accredited investor are permitted to participate.

DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65).  Individuals holding a Series 66 do not fall under this definition) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney. Before considering a DST investment, it is crucial to evaluate your eligibility as a qualified investor. Our team is committed to assisting you in this process, ensuring that you meet the necessary requirements to participate in DST opportunities. Additionally, we are here to address any questions you may have and provide detailed information to guide your investment decisions.

Please be aware that DST investments involve risks and considerations which include but are not limited to substantial fees and expenses, inability of the DST to actively manage the property, strict timing limitations and risk of not meeting requirements for 1031 exchange tax treatment, and other negative tax consequences. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies, lack of liquidity with restrictions on ownership and transfer. Potential cash flow, returns and appreciation are not guaranteed and could be substantially lower than anticipated. Diversification does not guarantee profits or protection against losses.

Additional risks and considerations related to investing in 1031 DST commercial real estate include, but are not limited to, general real estate risks, financing risks, tax risks, interest rate risk, management risks, operating risk, market risks such as supply and demand, changing market demographics, tenant turnover, tenants inability to pay rent, acts of God such as earthquakes, floods or other uninsured losses. There are also potential risks relating to the trust structure and the potential for adverse changes in laws and regulations. This material is not to be interpreted as tax or legal advice.