High 1031 exchange traffic has been “an effect of retiring baby boomers looking for a more stable investment class” according to Chad Kurz, managing partner of Matthews Retail Advisors, as quoted in GlobeSt.com’s September 17, 2015, article, Baby Boomer Behind Active 1031 Exchange Market, by Kelsi Maree Borland.
Kurz told GlobeSt.com, “[Baby boomers] want the peace of mind that comes with retirement. When you combine this with the volatility of the stock market and the foreign markets, you are going to see investors get out of management intensive investment opportunities or riskier assets and run toward safer investments.”
According to Kurz, investors are motivated to invest in real estate because real estate investments can offer safety/security, cash flow, and wealth preservation/appreciation. He suggests these goals can be achieved through investments in net-leased real estate where long-term lease agreements are in place with investment-grade, credit tenants. Kurz told GlobeSt.com, “In the net lease world, the rent is often guaranteed for 15 to 20 years. As we saw in 2007 and 2008, some companies are too big to fail and a lot of them have a positive outlook, considering they have very strong credit and great financial sheets. For investors, this offers an income stream and cash flow that is reliable for the foreseeable future.”
When asked about the biggest challenges 1031 exchange buyers face, Kurz listed the unknown surrounding potential replacement properties such as “what are [1031 exchange buyers] going to buy; who is the tenant; where is it going to be located; what is the likely cap rate; and most importantly, what is the new return?” as examples of unknown factors. Kurz also mentioned the time constraints for completing replacement property transactions. He explained, “The government only gives you so much time to identify and then purchase a property. If you don’t have a plan in place when you list your property, and your broker isn’t diligently working on effectuating your exchange throughout the marketing and sale of your down leg, you can be left buying a property because you have to, not because you want to.” Lastly, Kurz suggested 1031 exchange buyers are challenged by inexpert counsel assisting in the exchange process. He said, “Oftentimes clients are not given the best information by other firms, because they’re working with a broker who is trying to be a jack-of-all-trades, and they end up being a master of none.”
We, at 1031 Crowdfunding, found this article interesting and wanted to further discuss it in our blog because much of what Kurz told GlobeSt.com is what we have been saying all along and is the reason we created 1031 Crowdfunding. There certainly is a great deal of traffic in the 1031 exchange market, currently making the process more challenging for investors who have been exchanging for years and for those, including the baby boomers, who are looking to capitalize on a potentially safer, more stable, less management-intensive investment that offers a tax deferral opportunity. There are many firms with many different methods seeking to help these exchange investors negotiate the traffic and attain their investment goals. Our method is the Delaware Statutory Trust (“DST”). We believe DSTs are a vehicle that can offer investors a chance to attain their goals and solve the challenges exchange investors currently face.
We present a variety of DST options on our platform to meet the goals of investors. Each of these options is an investment-grade property with a long-term, net lease agreement established with a reputable, credit tenant. Each DST we present is offered by an experienced, proven sponsor company. We complete a due diligence process to ensure the properties and the sponsors associated with the DSTs listed on our platform provide a reasonable assurance of success for investors seeking secure investments that don’t require direct management, provide consistent cash flow, and will preserve and, ideally, appreciate the investor’s wealth.
For investors who are challenged with not knowing what they want or what they can find in a replacement property, we offer many DST options. The investor is presented with answers to all of the questions of what is the property, where is it located, who is the tenant, what is the likely cap rate, and what is the return. Investors simply have to choose which option works best for them. They can choose the option they want, not just the option they can find.
For investors who are challenged with the strict 45- or 180-day timelines, our DSTs can close within 3-5 days. We like to consider DSTs as an insurance plan for investors who are perhaps interested in other investment structures for their exchange. Because there is no guarantee that the investor will be able to close on their first choice, or possibly even their second choice, property in this competitive real estate market, we suggest identifying one of our DST properties as a third option. We can guarantee timely closing of the investment in the DST of choice to ensure successful completion of the exchange. We’ve met with investors who have been unable to acquire even their third choice property, either because they didn’t have enough time or the properties were sold to other buyers. With a DST, there is no reason the replacement property should be the reason for a failed exchange. Furthermore, DSTs are great first choice options for investors because they close so easily. There is no reason to stress for 45 or 180 days over finding a replacement property. There are no extra closing fees or hassle of inspections and deed transfers, etc.
Lastly, for investors who are challenged by inexpert counsel and need assistance with the exchange process, we are here to help. Our specialty is 1031 exchanges, and our team thrives on educating investors on the 1031 exchange process. We want to see investors have success, and we fully believe in the benefits of 1031 exchanging, so whatever we can do to help investors take advantage of these benefits, we will do it. Each of our DSTs is 1031 exchange suitable and each of the DST sponsors we work with specializes in 1031 exchanges. We also have relationships with highly experienced qualified intermediaries that we recommend to make sure clients receive quality representation for every angle of their exchange.
Many people are talking about 1031 exchange; many people are engaging in 1031 exchanges. We’d love to help you determine if your investment goals can be achieved through a 1031 exchange and if your exchange challenges can be reduced by a 1031 exchange-suitable DST.