Gotta Minute – Learn A Lot!
In the realm of real estate investing, achieving liquidity can seem like a far off aspiration for investors. But who wouldn’t want to cash out their investments while enjoying the rewards of their efforts? David Moore from Equity Advantage had a conversation with industry veterans Keith Lampi, the CEO of Inland Real Estate Investment Corporation, and Robert Smith, from Peregrine Private Capital. They delved into the nuances of Delaware Statutory Trust (DSTs) and 721 Exchanges during their discussion.
What is a DST?
Investors can come together through a Delaware Statutory Trust (DST) an entity that eases the burden of managing estate directly by pooling resources to invest collectively in properties or portfolios without the hassle of day, to day property management tasks. This setup allows individuals to own shares in properties and enjoy advantages like spreading out risks and earning income through distributions from the profits made by the assets involved, a bit like receiving money in your mailbox without having to do much work, for it. Often referred to as “mailbox money”.
What is a 721 UpREIT?
The 721 Exchange gets its name from Section 721 of the Internal Revenue Code. Gives property owners the option to transfer their assets to a real estate investment trust (REIT) in return, for operating partnership units (OP units). This arrangement allows investors to defer taxes on their gains by not having to pay capital gains taxes on the increased value of their properties when making the switch, to a varied investment portfolio without facing immediate tax implications from a standard sale transaction.
Why Can’t Investors Get Enough of These Passive Investments?
Investors are attracted to DSTs and 721 Exchanges, for their capacity to offer liquidity and diversification while generating income streams that require hands on management involvement, than traditional property ownership models do. Shifting from property ownership to these setups can be a move as the market landscape changes over time.
Exploring the Popularity of 721 Exchanges
As the market grows older and more established the demand, for 721 Exchanges has skyrocketed recently. These Exchanges are highly beneficial when seller financing is required as they enable investors to postpone taxes while also having the opportunity to access liquidity through OP units. Nevertheless, a significant number of investors are not well informed about the tax consequences linked to these transactions, such, as the risk of depreciation recapture and the intricacies of debt relief.
A Broader Perspective on Liquidity
Investors commonly seek liquidity in their investments; however, when faced with a situation where assets are appreciating steadily the natural inclination to sell might be met with a reluctance to let go. Instead hold onto these assets for potential future gains. This scenario underscores the significance of having an understanding of the investment choices within the real estate sector. One intriguing option is the 721 Exchange which presents an opportunity for investors to Exchange properties, for OP units and reap the advantages of a portfolio offered by REITs.
Tax Considerations and Future Implications
To investors looking into a 721 Exchange deal it’s vital to grasp the tax implications involved. Although deferring taxes may sound attractive it’s crucial to understand that converting OP units back into property can pose challenges. This restriction might impact investment plans for individuals who want to actively manage their assets.
Conclusion
The conversation, among Moore and his colleagues Lamp and Smith provides insights into how the real estate investment field’s changing over time. Investors are exploring ways to deal with the challenges related to liquidity and tax consequences in this environment. Opportunities such as DST investments and 721 Exchanges present routes for investors to reach their targets. Having a grasp of these strategies allows investors to make decisions that match their future financial plans.
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The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
