1031 Exchange-purchasing from seller who doesn't want to repeat

[Ashley Glinka]

Hi all,

I manage a group of 36 townhomes, owned by two older couples who are related to one another.  At our last meeting I approached them about the opportunity to purchase the property from them if they ever choose to sell.  We have a great relationship and I truly love the neighborhood. I hadn't figured out how I would purchase it-but if they gave me the opportunity-I would do what I needed to figure it out!  They did discuss this option and would be willing to give me the opportunity but ultimately said it wouldn't work because they purchased this neighborhood through a 1031 exchange.  They said they'll have to hand it down in their estates.  Does anyone know of anything I can do to make it work for them and me?! There's got to be something I can approach them with so that it would make sense for them to sell to me? Or is there really no way around it? Please send me any creative ideas you may have!

[Steve Wolterman]

Actually, this could be on the easier side of things. They obviously don't want the burden of having to buy "bricks and mortar" replacement property that they have to manage. They can sell to you and buy into a DST. The IRS has blessed DST structures (given some particulars) as "like kind property" for purposes of a 1031 exchange. i.e., they could sell and exchange into a fund that will pay them an annual coupon or return of 5.5 to 6.5% return, zero property maintenance obligations. Think of them buying into a fractional interest of a 300m Amazon industrial warehouse. Corporate guaranteed by Amazon. They can still pass on that investment to their heirs and keep the tax deferral and pick up cash payments to take care of their income needs. There are definitely options for them.