Be Wary of Chasing Yield in Delaware Statutory Trusts

Many investors that are looking at potential properties will investigate properties that are part of a DST (Delaware Statutory Trust) and oftentimes taxpayers get very myopic about the yield or the rate of return on the investment.

Chasing Yield

If you’re chasing yield you may do yourself a disservice because if the only thing you’re worried about is getting a 6.5% return, you may take on a property that has a much higher risk and a less certain outcome than if you would have settled for a property with a 5% return but was much more stable and solvent.

A very important aspect of choosing a replacement property is to look at the potential for underlying appreciation of the asset because at the end of this run when you are going to sell the underlying asset you want an asset that will have appreciated and not declined in value. So underlying the monthly rate of return is the more important appreciation of the asset itself.

After-Tax Cash Flow

Another consideration is to look at the after-tax cash flow from the property that would include depreciation and other deductions that pass through to you as one of the fractional owners of the underlying real estate.

Further, not all DSTs are the same when it comes to debt. Some have zero debt. Others have debt that may come due after 5 or 7 years. That maturity date on the debt can create a crisis if you have to sell the property to pay off the financing.

So there are a lot of different variables to look at when exploring what DST is the best for you. If you’re chasing yield alone, your eye may not be on the ball for these other very important facets of a DST.

Reach Out to CPEC1031, LLC to Begin Your Exchange

Are you looking to learn more about how to save money in capital gains taxes on the sale of investment real estate? If so, you’ve come to the right place! CPEC1031, LLC focuses exclusively on facilitating 1031 exchanges. Our qualified intermediaries have been helping taxpayers with their 1031 exchanges for over two decades. Contact us to learn more about our services and how we can help you begin your 1031 exchange. Our primary offices are located in downtown Minneapolis, but we work with clients across the United States.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

How to Reinvest Your Commercial Real Estate Returns

Reinvesting your real estate returns is easy with section 1031 of the Internal Revenue Code. In this article, we are going to offer up some tips for reinvesting your real estate returns using a 1031 exchange.

Defer Taxes

The beauty of a 1031 exchange is that, when done properly, you can defer your capital gains taxes by continually reinvesting the sales proceeds into new replacement property. This allows you to keep your money working for you in a continued investment, compounding wealth over time rather than cutting a check to the government.

Always Trade Up

One important thing to keep in mind when exchanging like-kind property is that you always want to trade up when it comes to your replacement property. That means your replacement property needs to be equal to or greater than your relinquished property in value, equity, and debt. In order to defer 100% of your gains, you need to be sure to satisfy these requirements.

Be Mindful of Your Timing

1031 exchanges are governed by strict time lines. Be sure you meet the necessary deadlines or your exchange will fail.

1031 Exchange Resources

If you need help with your 1031 exchange, let the professionals at CPEC1031 help. Our qualified intermediaries have two decades of experience assisting clients with their real estate exchanges under section 1031 of the Internal Revenue Code. We can help advise you throughout the process, prepare your documentation, and answer all of your questions. Contact us today at our downtown Minneapolis office to learn more about our services and get started with your very own 1031 exchange.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Hot Commercial Real Estate Trends in 2022

Many people are interested in getting into the business of real estate investing because they see it as a sane place to invest their money. They don’t want to be subject to the whims of the stock market going up and down. Instead, they want a more stable investment opportunity. In this article, we are going to discuss a couple of hot investment trends we’re seeing in the commercial real estate industry.

The Housing Hack

What we see in this marketplace right now is a huge amount of interest in what we call the “housing hack.” Young entrepreneurial Millennials are figuring out that they need to start preparing for their future by building their wealth in real estate. To that end, many young investors are looking for duplexes, tri-plexes, or four-plexes that they can owner/occupy a portion of and rent out the rest. They’re getting into the business of real estate like so many past generations.

VRBO & AirBnB

Another trend we are seeing lately are people looking for VRBO / AirBnb type investments. Investors are looking for opportunities to purchase investment or business real estate in desirable vacation areas of the state of Minnesota.

CPEC1031, LLC

If you’re looking to defer capital gains taxes on the sale of investment real estate, a 1031 exchange may be right for you. At CPEC1031, LLC we have more than twenty years of experience facilitating like-kind exchanges of all shapes and sizes. We can help you through all the details of your exchange. Contact us at our 1031 exchange offices in downtown Minneapolis today to learn more about our services and how we can help with your next 1031 exchange.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

Recent Trends in the Commercial Real Estate Economy

The commercial real estate economy can shift quickly and it can be difficult to stay on top of recent trends. In this article, we are going to discuss some trends that we see in the real estate economy as they relate to 1031 exchanges.

Property Management Fatigue

I have a lot of clients that have highly appreciated duplexes and single-family rental properties, and the owners are getting tired of managing these properties.

They don’t want to deal with tenants, trash, toilets, and collecting rent. As a result, they’re wanting to sell their properties and transition into other investments (whether it's triple-net-lease, single-tenant, or some other type) and try their hand at some other aspect of commercial real estate.

Regulation & Rent Control

We're also seeing some fear in the Minneapolis-St. Paul metro area that rent control and more regulation of landlords will make the business of renting even more difficult.

The landlords in Minneapolis and Saint Paul have dealt with increased property taxes and regulatory restrictions for quite a while and now many of them are done staying in that space. These investors are looking at this as a great opportunity to sell at the top of the market and reposition into other segments that are less management-intensive, such as medical office

We’ve seen an increase in marketplace velocity in 2021 and it’s mostly small investors driving this increase. It’s mom and pop stores and landlords who own small single-family rental duplexes, four-plexes, farmers, or other business owners that are taking advantage of this high-value, low interest environment to transition into other real estate Investments.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Getting Rid of 1031 Exchanges Would Negatively Impact Smaller CRE Owners

Many people assume that President Biden’s recently proposed “American Families Plan” that significantly reduces 1031 exchanges would only impact the top 1%. But the reality is that this plan would negatively impact smaller commercial real estate investors as well, by limiting their ability to roll over profits tax-free into a similar new real estate investment. The result could include a lot of unintended consequences, such as less appreciation for commercial real estate, less liquid markets and less price transparency.

“This could curb investors’ willingness to purchase new properties, lead to higher leverage on properties purchased in an effort to maximize returns or decrease investors’ desire to invest in and improve the assets they currently own,” BofA CMBS strategists Alan Todd, Mao Ding and Graham Voss wrote in their April 30 securitization note.

1031 Exchanges are Used by Investors Big & Small

1031 exchanges are used by smaller investors who buy modest properties that fly beneath the radar of larger commercial real estate firms. These like-kind exchanges allow investors to defer capital gains taxes when selling real properties by reinvesting the proceeds into new, like-kind replacement property.

“The president would also end the special real estate tax break that allows real estate investors to defer taxation when they exchange property for gains greater than $500,000,” BofA says. “An empirical analysis of exchanges reveals real property like-kind exchanges are associated with increased capital investment in the replacement property, reduced loan-to-value ratios (that reduces system-wide risk), and shorter holding periods.”

U.S. Department of Treasury Office of Tax Analysis estimated $37.56 billion in tax revenue will be foregone between 2020 and 2029 due to like-kind exchanges.

 If smaller commercial real estate investors no longer buy these assets because of the limit on 1031 exchanges, the impact could be far-reaching and negative for the greater economy.

•  Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved