Are Reits a good invest? Why or why not?

[Willson Guimont]

I’m in a situation where I have a 1960 100,000 sq foot commercial property and it’s in need for a huge repair. So my question is do I keep the building or sell and go into a reit?

[Mark Creason]

@Willson Guimont

You can exchange into a Delaware Statutory Trust or a Tenant In Common, but not a REIT. I have seen DSTs that have an upREIT attached to them. In an upREIT, the DST converts into a REIT. Although REITs potentially invest in real estate, they are technically not real estate. In a 1031 exchange, you need to reinvest all the cash from the exchange into real estate for investment or business purposes. So no personal residences. You also need to reinvest an equal or greater amount than the net sale price of the property you sold. If you don't accomplish both of these requirements, you can have boot. Boot can be cash boot or mortgage boot. Boot is taxed as profit first, so if you have 50k in profit, but take out 30k in mortgage boot, you will be taxed as if you had 30k in profit. Hope this helps. Feel free to reach out if you have any other questions.

Mark