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Syndicated Real Estate and 1031 Exchange

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  • #16
    Originally posted by jfoxcpacfp View Post
    I think you may be referring to Delaware Statutory Trust Investments (DSTIs). I cannot comment on the risks or recommend a firm, as I am an equity funds investor gal, but we have a client who is dipping his toe into these. Google to learn more. The concept is fairly easy to understand but, as with all real estate investing, they are illiquid and somewhat opaque. However, they might help you achieve your objective of deferring the gain without having to be hands on in the future. I am simply informing, not recommending.

    Another solution might be to sell your property on an installment sale basis and pay tax on the gain as you receive the payments.
    Thanks jfoxcpacfp and all of other people posting for the advise. As an update, I sold my rental property, used IPX for the intermediary, they recommended a financial planner whom gave me a few choices of what DST property to exchange. I ended up paying $1000 for the exchange and $250 per purchase. I didn't pay the advisor, so don't know how much of a fee he got paid and by whom. So far the DST property is giving a better return (4%) of what I was making by managing a rental property myself (actually I was losing money: my property was empty for several months, I was paying a management company and had to do repairs after the last tenant left).

    Now that I realized that direct physical RE ownership may not be for me at this time, I would like to increase my indirect RE exposure so I have another question for the forum (if you believe I should post somewhere else let me know): My actual exposure is Vanguard REIT 6%, equity 3% and debt 0%. After reading online articles, I believe I would like to have Vanguard REIT 4%, Debt 4%, Equity 7%. The posts took me to the crowfundingrealestatereview. com where its mentioned that you can do a "passive pairing" strategy (pairing passive loses from equity RE with passive gains from debt RE )
    and the 1031 strategy ("defer, defer, die"). On different articles,
    its mentioned that we need to diversify to decrease risk ( my take is that its better to invest in a RE fund (with multiple properties) rather than one individual syndicated deal)

    I cant find an answer if all those strategies (passive pairing, 1031 and diversification) can be executed at once with the same fund or funds ? meaning are there any RE equity fund with passive loses that let you 1031 at the end? From what I read, the 1031 can be done only if the deal is DST or TC, and I believe only -some- individual syndications (but not RE funds) are structured that way?

    Also from the few forums I read, seems that debt RE (either individual syndication or a RE fund) income usually comes as a 1099 DIV so its not passive. Seems that it would be hard to find a RE Debt Fund that provided passive income?

    Thanks again for any help.

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    • #17
      Originally posted by hypercube View Post

      Thanks jfoxcpacfp and all of other people posting for the advise. As an update, I sold my rental property, used IPX for the intermediary, they recommended a financial planner whom gave me a few choices of what DST property to exchange. I ended up paying $1000 for the exchange and $250 per purchase. I didn't pay the advisor, so don't know how much of a fee he got paid and by whom. So far the DST property is giving a better return (4%) of what I was making by managing a rental property myself (actually I was losing money: my property was empty for several months, I was paying a management company and had to do repairs after the last tenant left).

      Now that I realized that direct physical RE ownership may not be for me at this time, I would like to increase my indirect RE exposure so I have another question for the forum (if you believe I should post somewhere else let me know): My actual exposure is Vanguard REIT 6%, equity 3% and debt 0%. After reading online articles, I believe I would like to have Vanguard REIT 4%, Debt 4%, Equity 7%. The posts took me to the crowfundingrealestatereview. com where its mentioned that you can do a "passive pairing" strategy (pairing passive loses from equity RE with passive gains from debt RE )
      and the 1031 strategy ("defer, defer, die"). On different articles,
      its mentioned that we need to diversify to decrease risk ( my take is that its better to invest in a RE fund (with multiple properties) rather than one individual syndicated deal)

      I cant find an answer if all those strategies (passive pairing, 1031 and diversification) can be executed at once with the same fund or funds ? meaning are there any RE equity fund with passive loses that let you 1031 at the end? From what I read, the 1031 can be done only if the deal is DST or TC, and I believe only -some- individual syndications (but not RE funds) are structured that way?

      Also from the few forums I read, seems that debt RE (either individual syndication or a RE fund) income usually comes as a 1099 DIV so its not passive. Seems that it would be hard to find a RE Debt Fund that provided passive income?

      Thanks again for any help.
      Dividends are passive. Personally, I think you’re making this too complicated. Do you really think you’re going to juice up your long-term returns over a plain old well-diversified equity portfolio with these convoluted strategies? Of course, jmpo, but more complexity does not equate to more income unless you are a specialist in your field. Such as...an orthodontist. Even then, there is no guarantee that you won’t make unproductive decisions, but (at least) working harder is far more correlated to higher income, while complex strategies need a pretty big element of luck thrown in.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #18
        Originally posted by jfoxcpacfp View Post

        Dividends are passive. Personally, I think you’re making this too complicated. Do you really think you’re going to juice up your long-term returns over a plain old well-diversified equity portfolio with these convoluted strategies? Of course, jmpo, but more complexity does not equate to more income unless you are a specialist in your field. Such as...an orthodontist. Even then, there is no guarantee that you won’t make unproductive decisions, but (at least) working harder is far more correlated to higher income, while complex strategies need a pretty big element of luck thrown in.
        Thanks for the comment. I guess because I am comfortable with my current diversified equity portfolio and its relatively close ( it still need to increase ~30% ) to my "retirement number": x4 annual expenses , and I have 20+ years of potential work life; I would like to diversify into RE. Some websites even recommend 20% or more of the portfolio into "alternatives". Also I am happy with my recent 1031 DST exchange, its giving me monthly income and I hope all of it will be tax free ( will have to see how much depreciation the DST gives me by the end of the year). Finally, I would like to keep my options open in case I decide to 1031 back into physical RE at some point in the future. I like the idea of passing it to my children tax free. Yes, its more complicated than doing a diversified equity portfolio, but it doesn't seem to me "too complicated": I believe if I were able to find a good RE fund ( so to provide diversification) that also provide options to do 1031 and "passive pairing" , would be enough. Hence my question for the forum, not sure if the "passive pairing" and 1031 exchange are possible with RE funds ( or only applies to individual syndication that are DST/TC) . Of course I would have to add more layers of complexity ( analyzing the fund, vetting the sponsor, knowing how much on fees I am paying, etc) but first I would like to know what exactly is available and possible.

        So you mention "dividends are passive": would that mean that the income coming from any RE Debt fund could be taken against the passive loss of depreciation coming from a RE equity fund? From the website I mentioned (realestatecrowfundingreview.com) my take is that the income has to come as a K1 form, so to be able to be paired against RE passive losses. Also, from other posts, when I read "hard debt" investment, I think they mean investing on RE Debt. And they mention this hard debt being tax inefficient, and people recommend to have them placed, if possible, on a self direct IRA or other types of tax protected accounts.
        Last edited by hypercube; 06-30-2020, 09:12 PM.

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