37th Parallel Properties - March 2018



How We’ve Helped With 1031 Exchanges

March 2018


E-Commerce and Retail

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An Industry Resistant to Disruption


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The Power of 1031 Exchanges

with a 1031 exchange. The process is definitely cumbersome, and yet, for most investors, 1031 exchanges are extremely advantageous. Rarely a week goes by without one of our clients asking if we can help them or someone they know with a 1031 exchange. Typically, they have equity in another building that needs to be sold, and they want to exchange it into one of our properties. Because of the administrative overhead and lending factors associated with these exchanges, many syndicators do not allow people to 1031 exchange into their properties. We have a different approach. We do our best to assist with 1031 exchanges under specific circumstances. The most important factor in achieving a successful exchange with us is early communication. If you’re thinking of doing a 1031 and exchanging into one of our properties, please let me know even before you put the property on the market. To best illustrate the importance of early communication, let me tell you about a referral we couldn’t help. This person owned a farm in California, and the state

was taking it by eminent domain for their high-speed rail. The property was in escrow when she contacted us, and about to close. According to her CPA, she was facing about $600,000 in taxes from the sale, and she desperately wanted to avoid paying that tax. We needed to know much sooner than that, as we had just closed on a deal and didn’t have a new opportunity coming in her time window. Fortunately, through our network, we were able to help her with exchange options to avoid that tax hit. Unfortunately, it was a higher risk and lower return option in the retail space. It definitely wasn’t her first choice, but she was incredibly grateful for the assistance. The lesson to be learned from this case is that early communication is imperative to a successful 1031 exchange. If you’re looking to move property this year and are considering exchanging that property into one of our deals, let’s sit down and discuss it. Sooner is better than later. You can reach me at cdoty@37parallel.com. –Chad Doty

1031 Starker exchanges are a powerful wealth-building tool. They allow owners of real estate to sell their property and purchase a new property while deferring both capital gains taxes and depreciation recapture tax. Growing your wealth without the drag of taxation is financially compelling, to say the least. When you utilize that strategy in the long term, it is even possible to eliminate those taxes altogether for your heirs. This is a big reason why so many wealthy people invest in commercial real estate. As you can imagine, Congress has strict rules for utilizing such an efficacious tax benefit. To complete a successful 1031 exchange, the IRS requires you to invest in “like-kind” property using a “qualified intermediary.” You have 45 days from the sale of your original property to identify up to three replacement properties, and 180 days to close. That is just an overview of a 1031 exchange. Without getting too far into the weeds, it’s easy to see that there are a lot of moving parts, complicated rules, and a fair amount of paperwork associated

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