There are many ways to earn a passive income, but some believe one of the most effective passive investments is real estate. Although real estate is always subject to fluctuations, over the longer term it tends to generate returns to the investor. One such investment is a REIT – Real Estate Investment Trust, and the tax-deferred path to this is via an UPREIT.
Perhaps you’ve just sold an income property and you’re interested in purchasing shares in a REIT. You may be aware that this move will allow you to passively invest into properties while earning a potential monthly rental income all while not having to manage the day-to-day activities of a rental property like maintenance, finding tenants, etc. But because simply using your proceeds from a sold property and purchasing directly into a REIT does not qualify as a tax-deferred transaction, you will want to consider an UPREIT. How is this done?
You’ll need to 1031 exchange your existing investment property into a DST property for two years that will eventually be UPREIT’d into the REIT via a 721 Exchange. After two years, the property will be purchased by the REIT on a tax-deferred basis. Now you own shares of the REIT that can be sold after approximately two years of ownership.
For many reasons, investors enjoy the potential benefits of a REIT: they don’t have to exchange again; they can diversify on a broader scale; there are no maintenance issues; and they are liquid investments, which can be optimal for estate planning or taking out money for gifts, travel, making other investments, etc. Since you’ll pay taxes on the amount taken out, it’s always a good idea to consult with your tax advisor.
REITs offer investors the ability to invest in a large pool of properties. They may offer less risk if well-managed and deliver multiple income streams via dividends and appreciation. On the flip side, there is less control over the investment, and you’re subject to the ups and downs of the market. Most distribute income in the form of dividends to shareholders from earnings collected from rents and leases. Similar to a mutual fund, a REIT can vary and be traded or non-traded, public or private and diversified in its holdings of asset classes, such as apartments, office, retail, industrial or diversified into multiple asset classes.
Our team at Diversified Investment Strategies are specialists at 1031 exchanges and also experts in UPREIT opportunities. Our licensed real estate advisors can help identify such investments for you to consider.
Diversified Investment Strategies represents a team of experienced and trusted professionals specializing in real estate investment and services – including buying, selling, leasing, retirement planning and wealth growth and management through strategic, informed investment choices and a meticulous real estate investment analysis. As knowledgeable replacement property professionals, they help clients build a customized strategy that identifies suitable investments pursuing successful completion of a 1031 Tax-Deferred Exchange. Visit them at www.diversified1031 or call 866-261-0104.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, 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 potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) 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.
Diversified 1031 does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Diversified 1031 is independent of CIS.