1031 exchanges, a tax-deferred strategy that allows for the exchange of like-kind properties, have been a popular tool for real estate investors for decades. However, there is a growing interest in using 1031 exchanges to invest in sustainable and environmentally friendly real estate. This trend is driven by a combination of factors including increasing awareness of climate change, government incentives and the growing demand for sustainable properties. As awareness of climate change and the benefits of sustainable living continue to grow, it is likely that 1031 exchanges will play an increasingly important role in driving the development of sustainable real estate projects.
The Benefits of Sustainable Real Estate Investment
Investing in sustainable real estate offers several advantages beyond the potential for financial returns. Sustainable properties often have lower operating costs due to energy efficiency measures, such as solar panels or high-efficiency appliances. Additionally, these properties can attract tenants who prioritize sustainability and are willing to pay a premium for environmentally friendly living spaces.
Key Considerations for Sustainable 1031 Exchanges
When considering a 1031 exchange for sustainable real estate, there are several factors to keep in mind:
Sustainability Standards
Identify the specific sustainability standards or certifications that align with your investment goals. Examples include LEED (Leadership in Energy and Environmental Design), ENERGY STAR or local green building codes.
Property Types
Consider the types of properties that are most likely to meet your sustainability criteria. This may include energy-efficient multifamily buildings, solar farms or sustainable commercial spaces. (See below for more details on each.)
Market Demand
Evaluate the market demand for sustainable real estate in your chosen location. Look for areas with strong government incentives, growing populations and a preference for environmentally friendly living and working spaces. We are experts in locating properties throughout the country and will help find a property that aligns both your personal and investment goals.
Tax Implications
Consult with a tax professional to ensure your 1031 exchange complies with all applicable tax laws and regulations. This includes understanding the specific requirements for qualifying properties and the deadlines for completing the exchange. We can help steer you to the right professional.
Government Incentives and Support
Government incentives and support can play a significant role in encouraging sustainable real estate investment. Tax credits, grants and other financial incentives can help to offset the upfront costs of developing or acquiring sustainable properties. Additionally, government regulations can promote energy efficiency and sustainable building practices.
Examples of Sustainable Properties
Here are some specific examples of sustainable and environmentally friendly real estate that can be considered for a 1031 exchange:
Solar Farms
A real estate investor can utilize a 1031 exchange to sell a traditional property and reinvest the proceeds into the development of a large-scale solar farm. The solar farm in turn generates renewable energy to provide a potential steady stream of income.
Energy-Efficient Apartment Complex
A property owner can employ a 1031 exchange to sell an older apartment complex and purchase a newly constructed building with state-of-the-art energy efficiency features. The new building’s will enjoy lower operating costs and may attract tenants who prioritize sustainability.
Green Office Building
A commercial real estate developer can consider a 1031 exchange to acquire a vacant lot and construct new office building or upgrade an existing one that meets LEED Platinum certification standards incorporating a variety of sustainable features, including solar panels, rainwater harvesting and energy-efficient HVAC systems.
Diversified Investment Strategies is a team of seasoned professionals specializing in 1031 tax-deferred exchange solutions, offering customized strategies and expert analysis to identify potentially suitable investments, including DSTs, UPREITs, opportunity zones, TICs, NNN properties and oil & gas royalties. With a proven track record of hundreds of successful exchanges, we empower our clients to make informed investment decisions. Contact us at www.diversified1031.com or 949-379-2080.
*Example portfolio is hypothetical and for illustrative purposes only. Individual results will vary and are not guaranteed. Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor. This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. There are material risks associated with investing in private placements, Delaware Statutory Trusts (“DSTs”) and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section. DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65). Individuals holding a Series 66 do not fall under this definition) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.
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