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Syndicated Real Estate and 1031 Exchange

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  • Syndicated Real Estate and 1031 Exchange

    OK, this is more of a call/plea to WCI or others with experience in this area for some advise.

    My current tenant from my "accidental" investment rental condo has offered my a very generous, above market price on the unit.  I was planning to hold the unit long term as I would be on the hook for capital gains on about $200k as well as depreciation payback if I sell now.  So I am looking into 1031 exchange, but I have neither the time or desire to swap into another single investment property right now.

    Is it possible/advisable to 1031 exchange into syndicated/pooled real estate for the time being.  If so, I would love some advice on the best entity to work with as well as advice on tax lawyers/intermediaries that would be needed for 1031 exchange.  I'm usually a DIY on everything else, but have zero knowledge in this area.

    WCI, perhaps you or one of this blog's experts could consider writing a post on this topic?

    Thanks in advance for any advice.

  • #2
    Not sure , but can you enter a Tenants In Common structure ( TIC)  for the 1031 exchange? Might be worth looking into. Or just call one of the syndicators and ask them.

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    • #3
      Yes you can roll into a multi-investor group from a single owner on a 1031.

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      • #4
        Might you have any experience with upREIT transactions (1031/721 exchanges).  Been looking into this, as my goal is tax deferral and landlord hastle minimization, but primary downside seems that if the REIT decides to sell, you have little recourse and taxes become due.  Many other factors I'd have to learn about methodology and how unit shares are valued, rules etc...  which is increasing short term hastle factor and making me hold off.

        Is there a simpler option?

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        • #5
          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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          • #6




            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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            • #7
              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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              • #8
                Yes, it can be done. Contact the various firms doing this and ask which investments are eligible. They aren't all eligible.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #9
                  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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                  • #10
                    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.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #11
                      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.

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                      • #12
                        “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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                        • #13
                          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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                          • #14
                            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.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • Larry Ragman
                              Larry Ragman commented
                              Editing a comment
                              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.

                          • #15
                            The 1031 fees I paid were $500 on one deal and $750 on the other, so very reasonable.

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