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Strategic real estate investors should be knowledgeable about a variety of interrelated issues. They should be aware of the range of options available when it comes to ways to invest in different kinds of real estate, should know how to evaluate potential tenants, assets, and leases, and should stay apprised of macroeconomic trends and important tax and legislative issues.

Here we present educational articles on these different kinds of investing principles.

Frequently Asked Questions

What are the advantages of a 1031 exchange?

The main advantage of 1031 exchanges is that it allows real estate investors to reinvest proceeds from the sale of property held for the purpose of business or investment without owing 20% to 35% of one's capital gain in taxes.

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Does a 1031 exchange eliminate capital gains tax?

No. With a 1031 exchange, since you do not ever personally take hold of the proceeds of the sale of your relinquished property, there is no capital gain. Accordingly, capital gains taxes are deferred by a 1031 exchange. If later you sell your replacement properties, the capital gain you realize is calculated in terms of your original relinquished property's basis.

You can, however, continue to defer the recognition of your capital gains using 1031 exchanges until you are ready to pass your investment property on to your heirs. When your beneficiaries inherit your property, its tax basis steps up to the current market value.

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What is a DST?

The Delaware Statutory Trust (DST) is structured similarly to a TIC in that it provides a fractional ownership of interests in real estate based on the equity placed by investors. It is also structured for investors to use a 1031, 1033, or 721 exchange.

However, unlike a TIC, owners do not directly hold the title to the property. The owners hold a title to the real estate through a beneficial ownership of the trust. This makes the structure completely passive where investors have no responsibility to vote on any decisions. The trust and managers make decisions on behalf of the investors.

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What are the key benefits of a DST?

The main benefits of DSTs as they are used in real estate investing are that (1) you can acquire a fractional interest in several properties held by a DST to complete your 1031 exchange, (2) when a DST is used to complete a 1031 exchange, the investor has no management responsibilities for the properties held by the DST, and (3) DSTs can provide considerably higher cash flow (starting around 5-6%) than is often provided via sole ownership of a rental property.

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Is 1031 exchange only for investment property?

No, a 1031 exchange is for both investment property and property held for productive use in trade or business. In order to defer capital gains tax on the sale of property, both the initial property to be sold and the property to be acquired must be either investment or business property. 

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Do REITs qualify for 1031 exchanges?

No, a REIT does not qualify as part of a 1031 exchange. Investors cannot exchange their property and exit into a REIT through the 1031 process.

However, there is a process through an investor can eventually exit into a REIT. It is a two-step process that begins with a 1031 exchange into a Delaware Statutory Trust (DST). A DST can qualify as a like-kind property. Additionally, certain sponsors form DST portfolios with strategically planned sales to a REIT (a 721 or UPREIT exchange). While this process is more complicated and involves more steps, it is currently the only way to relinquish a property and (eventually) exit into a REIT.

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Can a 1031 exchange be used for stocks?

No. Stocks and certain other properties (bonds, inventory, notes, partnership interests, certificates of trust) are all specifically excluded from 1031 exchange. To qualify for a 1031 exchange, property must be held for investment or business purposes. 

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Can you acquire multiple properties in a 1031 exchange?

Yes, but how many properties you acquire depends on which of the 1031 property identification rules you use to complete your exchange. Depending on the rule you use, you can aquire 3 properties, as many properties as you like as long as their total value does not exceed 200% of the relinquished property’s total value, or as many properties as you like, regardless of their value, as long as you ultimately acquires 95% of the total market value of all properties identified.

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  • Strategy
  • Investment Structures
  • Macroeconomics
  • Tax and Legislative Issues

3 Tactics for Preventing a Failed 1031 Exchange

Learn our three tactics for preventing a failed 1031 exchange here.

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The Risks and Benefits of Triple Net (NNN) Property

The most common way real estate investors generate revenue is by leasing out their property. Although there are various kinds of leases, the “triple net” (NNN) lease has become popular for its simplicity. In a triple net lease, th...

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What Should Investors Look for in Triple Net Investment Property?

Long-term, single-tenant triple net properties can be one of the most reliable forms of income-producing real estate ownership. Learn about them here.

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What Should Investors Look for in a Triple-Net Lease Contract?

What are the five things every investor should know about triple-net lease contracts? Click here to find out.

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Five Ways to Invest in Real Estate: Their Pros and Cons

Read about Delaware Statutory Trust (DST) ownership, Tenant-in-Common (TIC) ownership, Real Estate Investment Trust (REIT), and more here.

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What Do Investors Need to Know About Real Estate Investment Trusts?

A Real Estate Investment (REIT) is a company that acquires, manages, and sells real estate on behalf of investors. This structure enables multiple investors to buy shares in a single company with an entire portfolio of income-producing real e...

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Can I 1031 Exchange Into a REIT?

This is one of the most common questions when talking with investors looking for a passive income stream when approaching retirement...

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Preparing for a Recession: A Strategy for Commercial Real Estate Investors

In the conclusion to the 2019 Economic Vulnerabilities series, Mikel Carrion provides commercial real estate investors with a proven strategy that is tax efficient, preserves capital and maintains income through the coming downturn.

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The Corporate Debt Crisis: High Credit Sentiment Precedes a Deep Recession

In Part 2 of the 2019 Economic Vulnerabilities, Mikel Carrion warns investors of a looming multi-trillion dollar corporate debt bubble that could lead to a series of defaults, handing investors significant losses and inciting a deep recession.

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Unprecedented Corporate Short-Termism Signals Deeper Recession

In this series, 2019 Economic Vulnerabilities, Mikel Carrion investigates what economic vulnerabilities may give in under the current strain of a cooling economy, rising interest rates, and continued economic shocks.

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When the Treasury Yield Curve Inverts, Look to History to Prepare for the Future

What does a flattening Treasury Yield Curve mean for real estate investors? In looking back, history reveals the future.

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California Proposition 10: What Can Real Estate Investors Expect?

Regulatory conditions may be changing with a proposition on the upcoming midterm ballot, and 1031Gateway is keeping an eye on an initiative in California that could have a significant impact on real estate investors: California Proposition 10.

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What is ''Budget Reconciliation''?

"Budget reconciliation" is a process that allows Congress to...

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Seniors to Be Hurt by Paul Ryan Tax Plan

Retirees are financially vulnerable to rising prices, or inflation, which is one possible result of...

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How Killing Mortgage Interest Deduction Would Hurt

A recent analysis from a Federal Reserve Board economist suggested that killing the mortgage interest deduction entirely could cause...

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