1031 Properties

[Nate S.]

Hi all.

I am thinking of selling a few properties in 2016. I would prefer to do a 1031 exchange on them to avoid paying the tax, but most markets in the US seem overbought right now (both SFH and multi-family). I am a bit hesitant to exchange into anything in retail, office or industrial as I believe the U.S. economy is about to experience a downturn and I don't have a lot of experience in those specific asset types. I would love to buy something oversees, but you cannot do a 1031 into a foreign property AFAIK.

I've done quite a bit of private lending and private placements, so I have poked around online a little bit to find qualified Tenant in Common (TIC) 1031 deals. However, most of what I see online only yields 5-6%, which is awful.

Does anyone else know of a good source to find larger 1031 qualified TIC properties or have other ideas as to what I could exchange into at this point in time that would make sense?

[Dave Foster]

@Nate S., well the market is what it is. And the low returns you're seeing on TICs are an extension of the heated market plus a factor for passivity. You may not 1031 into a REIT however there is a product similar to a TIC called a DST (Delaware Statutory Trust) that qualifies for 1031 treatment. capital ground leases can qualify as well. You'll have the same due diligence and return obstacles to overcome but this search may clarify some things for you.

Beware any qualified intermediary who is offering you qualified replacement properties. By their very nature that creates a relationship that disqualifies them as you QI. However, if you do a search for the terms DST, TIC, 1031 replacement properties, and land leases you'll get a bunch of product to look over.

Some other avenues to look at if for creative replacement properties that would qualify for 1031 treatment:

1. Oil Gas and mineral interests qualify as like kind for real estate.

2. Timber rights can qualify as real estate.

3. Productive passive farm land is an often overlooked as a replacement investment.  The returns are not super but are incredibly recession proof while also being hypersensitive to inflation so an upturn in the economy generally has a heightened impact on food/commodity prices which can boost your return quickly in the near term.