Can't find suitable replacement property for your exchange? Try this.

In some areas of the country, a real estate boom is happening that is having a direct impact on 1031 exchanges. High demand for properties is making it difficult for investors to find suitable replacement properties within the strict IRS timing rules. So what is an investor to do when they want to defer capital gains through a 1031 exchange?

For many investors, the answer lies in fractional ownership arrangements utilizing Tenancies in Common (TIC) or Delaware Statutory Trusts (DST). With these sort of investment vehicles, an investor is able to purchase a portion of an overall investment property and share in a proportional amount of revenue and appreciation.

TICs and DSTs have their drawbacks – with potentially dozens of investors in the pool, unified agreement can be difficult to achieve. However, they also have their benefits. One of the biggest ones is that fractional ownership allows an investor to own property they otherwise could not afford on their own.

Whether DSTs or TICs are right for an investor must be decided on a case-by-case basis after careful consideration of the investor’s goals and expectations. However, in today’s tough real estate market – where replacement property for an exchange can be hard to come by – this type of investment offers an alternative that is worthy of consideration.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.