All Forum Posts by: Jon Taylor

Do you have their Q4 statement? Can you DM me?

Has anyone on this forum worked directly with them on a 721 exchange?

I'd love to see their REIT financials to compare against the other public REITs that have a 721 program.

Generally we look at your tax bill as a self inflicted loss. The decision on whether to take the L is balanced against the alternatives you listed. 

Harvesting past losses is usually the first lever we will pull to generate some liquidity. 

Then, a helpful ratio we use is the loss against the total net equity as a percentage. In your case, estimating a $100k loss, your ratio is 5.5%. 

For you it may be pretty obvious, but generally anything under 15% flips the flag for serious consideration of alternatives to 1031 eligible real estate in today’s market. 

When you are thinking about replacement requirements to ensure you are deferring all your tax, you need to replace two things:

1) The net price of the property you sell (equal or greater); and 2) the net proceeds from the sale (equity). Anything you don’t replace will all be gain. You can bring additional money into the exchange, and you can bring additional debt as well.

Consolidation exchanges (selling multiple properties and purchasing a single property within the same exchange period) are absolutely possible, but you’ll need to creatively control your close dates in order to get everything done within your 45/180 day guidelines. Your replacement requirements will then become the aggregate total from the individual sales.

@Crystal Ribail -

In order to fully defer your capital gain and avoid paying the depreciation recapture, you'll need to purchase real property, held for investment, with a value greater or equal to your net sales price, using all of your net proceeds. So, unfortunately, notes are eliminated from consideration.

"Passive" investing is the ever-elusive goal! Others have mentioned some structures that are built to achieve that goal. Turn-key rental acquisition teams also exist for investors who want to own hands-off properties in strategically advantaged locations.

Your research process will likely have two phases. 

1) Gain an understanding of all of the structural options available that meet YOUR specific financial goals.

2) Develop acquisition criteria that allow you to screen property investments (regardless of the structure) efficiently.

There are a lot of folks on here that can help answer questions along the way!

@Joe Fish -

There would be nothing preventing you from purchasing the property in the way you've outlined. The success would entirely be dependent on the purchase agreement or option contract you can craft. Then you'd just weight the cost of that against the cost of the reverse exchange. 

@Dave Foster may disagree or provide additional comments. 

Regarding timeframe, each offering is different, and needs to be understood in the context of the terms of the debt and investment objectives of the Trustee on exit.

That being said, generally DSTs can be acquired with hold periods in the 3-7 year range.

Regarding due diligence, every investor should be able to understand the answers to these questions prior to investing: (*note: you can get all of this information on your own, but it will require information derived from multiple data sources outside of the sponsor provided Private Placement Memorandum)

1. What is my all-in price compared to current market comps

2. What is the business plan to increase value through controllable factors?

2.a. What is the trailing 12 month rent per unit type and occupancy rate?

2.b. What is the rent per unity type and occupancy rate in the submarket

3. What will influence the intended exit strategy for investors?

After you’ve invested, you’ll receive quarterly or annual update letters from the sponsor, and you’ll work with the investor relations team within your wealth management advisors office to navigate and understand the challenges and opportunities faced over the hold term.

It’s a lot of work, but you shouldn’t be flying blind into any investment. Interview multiple advisor to determine who is best resourced to do the work of re-underwriting the deals that are attractive.

@Adrian Lu -

Each DST sponsor (the group who puts the deal together) is required to disclose the "past performance of the sponsor and their affiliates" in their most recent PPMs. This is something that your advisor would have access to and should review in great detail. Every real estate offering contains risk, and most sponsors aren't batting 100. It's important to know what factors negatively impact real estate (systemically, and non-systemically), and where each offering is susceptible to that risk.

DM me if you aren't receiving that information.

@Vince Light

I'm sure others will chime in here, but there are a few basics to square away.

In order to fully defer your tax liability you will need to do two things: 1) replace the net sale price and 2) redeploy all of the net proceeds from the sale into the new property(ies).

A remaining balance in either category area will result in boot - which is taxable.

Using your numbers above, it appears to me you'll need to purchase a new property (or combine multiple properties) totaling $750k *less selling expenses*). You also need to use the entire net proceeds $435k (by my math: $750-$315). The $90k debt that you reference does not apply if the loan is not collateralized by the property you are selling.

Example: Using rough math, if you purchase a $650k property with $435k down, your taxable boot would be $100k.

If you purchase a $750k property with $335k down, your taxable boot would be $100k.

The gain only comes to play in the event that your boot exceeds your gain. In that case, your taxable gain would be your total gain (this scenario is highly unlikely to occur).

Connor is right, you cannot 1031 exchange directly into a REIT.

In order to perform a tax deferred exchange into an REIT, you will take advantage of IRS tax code 721.

This requires that the buyer of your current property be a REIT, and allows you to exchange the value of the asset for equivalent ownership in the REIT.

Occasionally, a REIT may be interested in purchasing the property that you own currently; or you may work with the REIT directly to own a property that they would want to purchase in the future; or as Connor mentioned the most common way for retail investors to participate in this exchanges through the DST market.

The top 4 DST sponsors all manage, privately traded REITs.

You really need to have a fundamental understanding of the REIT before taking this step, as it will be the last tax deferred transaction you can control with that equity. I posted a fairly lengthy post on this forum on how to review a REIT.

If you haven’t read it yet, DM me and I’ll send it to you.