Understanding Replacement Property
The property you sell or have sold during a 1031 exchange is relinquished property. And, the property you acquire or plan to acquire with the sales proceeds is called relinquished property. To conduct a successful 1031 exchange, the relinquished and replacement property must be held for investment purposes only or for trade. Moreover, during a 1031 exchange, you can sell any type of relinquished property and replace it with any kind of replacement property, as long as the properties are held for investment purposes only. This means that you can sell a piece of land to buy an office building, sell an office building to exchange for an apartment complex or sell a retail strip mall and buy an industrial building. Moreover, you can sell one relinquished property and exchange it with either one or more replacement properties. In short, if you sell 100 acres of farmland, you can reinvest the proceeds into buying three rental homes, an office condominium, a post office leased to the Federal Government and two Family Dollar stores.
Replacement Property Assistance
The day you close on your relinquished property, you get only 45 days to identify one or more replacement properties. During this time, you must list at least three preferred replacement properties with the intent of buying at least one. After the 45th day, you can not change your mind and look for other replacement properties. Because 45 days is an extremely short period to perform due diligence on the preferred replacement property, it is recommended to identify several property alternatives. Due to the severe time crunch involved during the 45-day ID period, we, at DST.com, offer assistance. Using our extensive industry experience and through our lifelong affiliates with 1031 exchange experts, we make 1031 exchange easy for you and help you find the right replacement property.
You can either end up paying a lot of taxes or exchanging in a property that wasn’t worth investing in. The stakes are high. But, we are here to help. We reduce stress by helping you find the right replacement property within the given time restraints.
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Our Expertise: Investment Grade Properties With Regular Passive Income
Talking from our experience, most exchangers are 60 or above seeking passive income. They don’t want to get involved with the hassles of managing a property or maintaining it. Their primary motive for exchanging is to generate a way to earn passive income every month without any active involvement. Below are the three most popular replacement property types that can help investors generate passive income while tackling all landlord responsibilities.
In a net-lease property, the tenant is responsible for paying for insurance premiums, taxes, maintenance, utilities and repairs, in addition to the rent. Some examples of NNN properties are Goodyear, Dollar General, Tractor Supply, Walgreens, O’Reilly Auto and DaVita Kidney Care.
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A DST or Delaware Statutory Trust allows 1031 exchange investors to purchase fractional ownership of the high-end performing real estate assets. Instead of providing undivided interest on a single property, DSTs allow investors to purchase a prorate share of a portfolio, including income-generating properties. This will enable investors to diversify and plan for a secure retirement, making it highly popular among investors. For instance, you can invest $100,000 in a DST and gain fractional ownership of a 300-unit apartment complex, invest an additional $100,000 and purchase fractional ownership of single-tenant net lease properties leased by national tenants. Moreover, with $300,000, you can diversify into 16 properties in different industries and locations.
When you acquire a property on your own, you have to pay for appraisals, get your finances from the bank, file for tax returns, pay origination fees and closing costs and bear the headaches of working with a lender. A DST, on the other hand, holds title to all the properties in it, while you, as an investor, own fractional interest in a DST. Meaning the trust already owns the properties and has financing in place. So, you don’t have to worry about financing, appraisals or working with a lender. Moreover, the loans are non-recourse.
DSTs are also professionally managed, maintained and are available with a portfolio of non-debt properties.
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