4D — November 13 - December 10, 2020 — Financial Digest — Lenders Directory — M id A tlantic Real Estate Journal
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By Jason Salmon, Kay Properties and Investments, LLC Three 1031 Exchange Alternatives
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just having to be constantly concerned with the value of hands-on real estate and the best time to sell, DSTs can potentially be the right thing at the right time. 1031 Exchange Alter- native #2 — Utilizing a Qualified Opportunity Zone Fund in lieu of a 1031 Exchange: Qualified Opportunity Zone Funds are relatively recent investment vehicles whereby investors can place capital gains (within a certain time- line of selling) into real es- tate investments. Through
the Tax Cuts and Jobs Act, certain areas that have been mandated as Opportunity Zones according to the IRS as “an economically distressed community where new in- vestments, under certain conditions, may be eligible for preferential tax treatment.” It should be noted though, that Opportunity Zones are not necessarily used as a 1031 exchange, but rather another option in the case of a failed 1031 exchange or a potential tax-deferral tool for other in- vestments with gains such as stock or the sale of a business.
031 Exchange Alter- native #1 — Utilizing a 1031 exchange into DST 1031 properties: Delaware Statutory Trust (DST) real estate has been a great way for investors to participate in passive, profes- sionally managed real estate for their 1031 exchanges since the IRS enacted Rev- enue Ruling 2004-86 which effectively blessed the use of a properly structured DST 1031 investment as “like kind” for the purposes of a 1031 exchange. The DST in- vestment structure of real es-
1031 Exchange Alternative #3 — The 721 Exchange or UPREIT: Many investors that want to do a 1031 exchange, but don’t want the hassle of day- to-day management, and/ or want diversification–and with a working knowledge of Real Estate Investment Trusts (REITs) ask “why can’t I invest in these vehicles for my 1031 exchange?” Because of very specific guidelines for what is considered “like-kind” real estate, REITs are not eligible for 1031 exchange. However, through an UPREIT transaction which stands for Umbrella Partnership Real Estate Investment Trust, it can potentially be possible through a series of steps. With a 721 exchange, instead of a 1031 exchange, investors may exchange property for OP or Operating Partnership units in the REIT. This might be easier said than done since the REIT would have to want to bring the relinquished prop- erty in and all parties would have to agree on terms, but it’s possible. Investors should also consider whether the REIT is public or private and the likelihood that they would have interest in conducting another tax-deferred exchange going forward since that would not be possible once this type of transaction has been made. Jason Salmon is senior vice president at Kay Prop- erties and Investments, LLC. About Kay Properties and www.kpi1031.com Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the mar- ketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor com- panies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST sec- ondary market. Kay Proper- ties teammembers collectively have over 115 years of real estate experience, are licensed in all 50 states, and have par- ticipated in over 15 Billion of DST 1031 investments. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memo- randum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and continued on page 12D
tate ownership has given in- vestors the potential to diver- sify across several property sectors, geographic locations and with various managers. For those that wish to focus on areas of life like family, hobbies and travel instead of dealing with tenants or
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