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Syndicated Real Estate and 1031 Exchange

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  • hypercube
    replied
    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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  • jfoxcpacfp
    replied
    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.

    Leave a comment:


  • hypercube
    replied
    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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  • dennis
    replied
    The 1031 fees I paid were $500 on one deal and $750 on the other, so very reasonable.

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  • Larry Ragman
    commented on 's reply
    That is fair. My mental model of an exchange is “real estate empire” then die and kids inherit with stepped up basis and I let that bias my quick response. To your point, it would be better to say, opportunity zone investments provide another alternative to 1031 exchanges to defer capital gains and recapture.

  • jfoxcpacfp
    replied
    Originally posted by Larry Ragman View Post
    Another possibility is to invest in an opportunity zone fund. Don’t have to bother with 1031, so much more straightforward. However, this is likely to end up as deferral rather than avoidance of gains.
    To clarify, 1031 exchanges also defer gains (as apposed to avoiding) because the basis of the property exchanged into assumes the basis of the property given up.

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  • Larry Ragman
    replied
    Another possibility is to invest in an opportunity zone fund. Don’t have to bother with 1031, so much more straightforward. However, this is likely to end up as deferral rather than avoidance of gains.

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  • Larry Ragman
    replied
    “Do you know if the fees to do the 1031 and using a crowdfunding RE website would be similar to the taxes I would be paying if I just pay taxes on the 45K ?”

    Fees to do the exchange should be significantly less. Since you are doing this for the first time, I would find a local fiduciary conversant with 1031 exchanges and walk through it with him or her. Some experienced exchangers argue it is possible to set this up yourself, but why? Not for a few thousand I don’t think. (Rules are easy to google, but your fiduciary cannot be your real estate agent, closing/title company, or family.) Fees for the reinvestment are whatever. You should only do this if you are actually interested in the new investment. Capital gains and depreciation recapture are worth avoiding, but not at the expense of locking in to a poor investment.

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  • dennis
    replied
    I did this in 2018. We had a syndicated apartment and were able to do a 1031 for both of the LLCs I used to invest in the syndicate, in fact one of the LLCs was my syndicating entity. We did have to do a little work on the title to qualify the money but the intermediary should be able to guide you on this. We used IPX (IPX1031.com) as the intermediator and have been happy with them on several 1031s.

    Leave a comment:


  • jfoxcpacfp
    replied
    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.

    Leave a comment:


  • hypercube
    replied
    I am in a similar situation, will be selling my rental property with capital gains and depreciation for ~ 45 K.

    Do you know if the fees to do the 1031 and using a crowdfunding RE website would be similar to the taxes I would be paying if I just pay taxes on the 45K ?
    Any specific websites/firms that you recommend to contact? I googled it and didn't find anyone specifically advertising for this, with the
    exception of https://www.1031crowdfunding.com/ . Had anyone had experience using them? Thanks for any help.


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  • The White Coat Investor
    replied
    Yes, it can be done. Contact the various firms doing this and ask which investments are eligible. They aren't all eligible.

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  • boarderdoc
    replied
    This is a question regarding 1031 exchange.

    Is anyone familiar on the mechanics of going from a partnership into a 1031 exchange.  Specifically, I am a 12% owner of a partnership that owns a single specialty building, which is being sold.   I will have capital gains on approximately 270K, including depreciation.  The partnership has no interest in another investment.   I've read about tenants in common, and the concept of drop and swap, but cannot get my brain around how that actually works.  I personally would like to find a way to invest in a single family rental, that I may be keen to move into in 7-10 years, and that is eligible for a 1031 exchange.    Any thoughts?    Thanks in advance

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  • NJDoc
    replied




    Yes you can roll into a multi-investor group from a single owner on a 1031.
    Click to expand...


     

    I'm not an attorney or a real estate professional , but my understanding of this is that you cannot 1031 exchange a 100% interest in one property into a partnership, unless a TIC is in effect. In addition, a partnership can 1031 as an intact partnership, but that is often difficult to do, therefore TIC swap and drop or drop and swap procedures must be followed. My understanding of this is frankly limited, but if I were you I would get a good attorney on the phone before you make any moves. Because, in the end what I or anyone else on this board says it not legal advice.

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  • Scott at MD Financial Services
    replied
    I am not exactly sure how to answer your question since you can obviously go from property to property with a 1031 but if you go to a project that is to big for you to own 100% and you have to bring in other investors or join other investors then the question of control certainly comes into play.  If you spearhead the project and are the GP then certainly you have control within the guidelines of investment objectives (not a big deal if you own 100% but certainly a big deal if you brought in LPs into the project).  In addition if you want you can talk to most brokerage houses for their 1031 options as most will have several options at anyone time.  An example of those options might be a group is looking to buy a Home Depot building that HD has a 15-20 year lease in place and has LP positions for you as an investor to 1031 into.  At the point they decide to sell then just simply 1031 to the next project, having options for HD, Wal-Mart, Walgreens and the such are pretty common place since most of those do not typically own the building and they typically do triple Net leases so you are pretty insulated.  If you are interested in those just find a good investment broker and ask them what they have in that space, if they don't have any at that time just call the next firm.

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