Example of a Historical Program Offered to Clients
The general process of a 1031 exchange, as an example, considers a tax deferred exchange of your existing rental real estate holding into another hassle-free, professionally-managed, rental real estate property. Back in 2018, we offered a client solution by a national sponsor of a 264-unit garden-style apartment community on 16.93 acres located in the southeastern US. The property, in this example, had 15, two- and three-story buildings, four garage buildings, a clubhouse and fitness center with a then current occupancy rate of >95%.
Overall, it was a ~$22M total offering titled as a DST (Delaware Statutory Trust) to our investor client community. For ease of longer-term estate administration, our client designated his kids as beneficiaries to automatically receive any rent distributions upon his demise. A great solution for our client’s income tax and estate tax challenges!
Hypothetical Scenarios
SCENARIO 1 – SELL PROPERTY, TAKE CURRENT CASH
Hypothetically, if there is an unrecognized gain of ~$1M on the sale of your property:
- That is currently generating $30,000 per year in rent income; and,
- Where you have the risk, burden and hassle of managing the property.
- Assume you would sell the property and NET ~$700,000 after paying 30% assumed income taxes.
SCENARIO 2 – ENGAGE IN 1031 TAX DEFERRED EXCHANGE TRANSACTION
On the other hand, if you choose to exchange into a program like the above example:
- You would now have the potential to generate higher “rent” equivalent distributions.
- You would have NO property management obligations .
- You would be deferring the $300K tax liability.
- You would invest the entire gain (and proceeds from sale) in a replacement property. No TAX.
The scenarios provided herein are intended to provide an illustration of mathematical principals only. It is not, nor can there be, any guarantee that any investment will achieve its objectives