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Video: What are Valid Selling Expenses in a 1031 Exchange?

02/02/23

In a 1031 Exchange, if certain expenses associated with the selling or purchasing of property are paid with the exchange funds ...

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In a 1031 Exchange, if certain expenses associated with the selling or purchasing of property are paid with the exchange funds it will create a taxable event. However, there are certain selling expenses that can be paid with exchange funds without creating a tax liability, learn what those specific expenses are within this video.

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Video: What are Valid Selling Expenses in a 1031 Exchange?

02/02/23

In a 1031 Exchange, if certain expenses associated with the selling or purchasing of property are paid with the exchange funds ...

What is a Passive Investment?

02/01/23

Passive, low maintenance investments are increasingly popular with seasoned real estate investors that are looking to eliminate the headaches involved ...

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The idea of passive income is prevalent—which is logical since the term refers to earning money without actually doing anything. That sounds too good to be true, and it is, but some income-producing activities require more involvement than others. For example, working at a job is one way to earn active income. On the other hand, investing can be either <a href="https://www.realized1031.com/blog/active-vs-passive-investing-the-key-d…; title="Active of Passive Investments via 1031 Exchange">active or passive</a>.

Directly investing in real estate is usually considered active income. The owner/investor is the landlord and must work to ensure the successful operation of the enterprise. For example, suppose you own one single-family home that you rent. You must manage the administrative aspects of the property, like the mortgage, taxes, insurance, tenant interactions, rent collections, maintenance, repairs, and more.

Many beginners are active real estate managers. Some enjoy the work, including the interaction with tenants. In contrast, others find it tedious or demanding (weekend calls about flooding or other urgent concerns can get old) and prefer to outsource some of the responsibilities. You can transition to more passive involvement if you hire a property manager to handle the day-to-day operations. However, you will pay some of your potential profits to delegate the work.

Real estate investments can be genuinely passive if you consider Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs). <a href="https://www.realized1031.com/blog/what-wealth-managers-should-know-abou…; title="What is a Delaware Statutory Trust">DSTs</a> are legal entities structured under Delaware laws that allow investors to participate in the ownership of commercial property as a beneficiary of the trust with a proportional share of the potential earnings. A Sponsor creates the trust, identifies and acquires the assets, and distributes profits. However, due to the lack of liquidity and other risks, DST participation is open only to accredited investors.

Any investor can invest in a Real Estate Investment Trust (REIT). <a href="https://www.realized1031.com/blog/how-do-reits-make-money" title="What is a REIT or Real Estate Investment Trust?">A REIT</a> is a company that buys, sells, manages, and finances commercial real estate. There is a variant that invests in financial instruments like mortgages. Most REITs are publicly traded on securities exchanges and are available to non-accredited investors with smaller amounts of capital available for investment. Some private REITs require accreditation and larger buy-ins.

<h2>Active versus passive stock investing</h2>

Stock investors can also be active or passive. A passive investor typically purchases shares in an index fund or ETF (exchange-traded fund) that holds a wide range of stocks and seeks to match the performance of a specific index, like the S&P 500 or the DJIA (Dow Jones Industrial Average). You can choose the fund that aligns with your goals and leave it alone.

Passive investing in a mutual fund is typically less costly and less risky than choosing individual stocks in an attempt to beat the market performance. Passive investors don't sell frequently but instead take a long-term approach. Active investors may achieve higher returns but must devote more time and accept the higher risk.

Authored by Realized®.

Realized helps you exchange 1031-eligible investment properties for portfolios of commercial real estate that are customized to your shifting income needs, risk appetite, and investment goals across generations. By creating portfolios of fractional interests in Delaware Statutory Trusts (DSTs), Realized makes it easy to diversify investments across real estate sectors, geographies, and Sponsors.

Contact <a href="https://www.realized1031.com/" title="Realized Website">Realized</a> to learn more about their due diligence and portfolio construction methodologies.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. 
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 
All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. 
All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested and there is no guarantee that you will receive any income. 
Programs that depend on tenants for their revenue may suffer adverse consequences because of any financial difficulties, bankruptcy or insolvency of their tenants. 
No public market for DSTs currently exists, and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment. 
There is no guarantee that the investment objectives of any program will be achieved. 
The actual amount and timing of distributions paid by REIT programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time. 
Hypothetical examples shown are for illustrative purposes only. 
A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. 
REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.  
There are risks associated with these types of investments and include but are not limited to the following:

<ul>
<li style="margin-top:13px; margin-left:8px">Typically, no secondary market exists for the security listed above.  </li>
<li style="margin-left:8px">Potential difficulty discerning between routine interest payments and principal repayment.  </li>
<li style="margin-left:8px">Redemption price of a REIT may be worth more or less than the original price paid.  </li>
<li style="margin-left:8px">Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. </li>
<li style="margin-left:8px">There is no guarantee you will receive any income. </li>
<li style="margin-bottom:13px; margin-left:8px">Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes.  </li>
</ul>

This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.

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What is a Passive Investment?

02/01/23

Passive, low maintenance investments are increasingly popular with seasoned real estate investors that are looking to eliminate the headaches involved ...

How 1031 Exchanges Stimulate the Economy

01/30/23

1031 Exchanges have had a positive impact on the United States economy since 1921. The ability to defer capital gains, and various ...

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<li>1031 Exchanges Come in All Sizes 
1031 Exchanges are one of the few incentives available to and used by taxpayers of all sizes. Individuals, corporations, LLCs, etc can utilize 1031 exchanges. In fact, 60% of all exchanges involve properties less than $1 million. 
 </li>
<li>Efficient Use of Cash Flow 
1031 Exchanges allow taxpayers to change geographic locations, diversify, or consolidate holdings, or shift to more productive like-kind property without paying unnecessary taxes, in turn stimulating a variety of economic sectors. 
 </li>
<li>Promotes Domestic Investments 
1031 Exchanges require owners of domestic real estate to reinvest in US real estate, keeping the money within the US economy. 
 </li>
<li>Encourages the Free Flow of Real Estate Transactions 
Postponing gain recognition on the sale of real estate through a 1031 Exchange encourages transactions that would otherwise be delayed or abandoned. 
 </li>
<li>Provides Continuity of Income Producing Investments 
1031 Exchanges allow farmers and ranchers, who typically sell property at retirement, to reinvest 100% of their proceeds into a passive-income property. 
 </li>
<li>Taxes Will Be Paid - One Way or the Other 
1031 Exchanges allow for tax deferral, not tax elimination. The taxes will eventually be paid either upon the sale of replacement property without an 1031 exchange or through increased income tax due to foregone depreciation, or by inclusion in a decedent’s taxable estate. 
 </li>
<li>1031 Exchanges Create More Jobs 
1031 Exchanges promote additional real estate transactions. Without 1031 Exchanges there would be less need for various jobs extending to real estate, title insurance, construction, mortgage, and other related industries. 
 </li>
<li>Preserves Cash Flow 
1031 Exchanges preserves cash flow and eliminates liquidation of other assets or increased needs for debt financing. 
 
 </li>
</ol>

Source: Federation of Exchange Accommodators (FEA) Impact of §1031 on the Economy 5-3-2018

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How 1031 Exchanges Stimulate the Economy

01/30/23

1031 Exchanges have had a positive impact on the United States economy since 1921. The ability to defer capital gains, and various ...

Case Study: Veteran Qualified Intermediary Shifts to Managed Service Tripling Revenue

01/24/23

This is a true story, based on facts. Learn how Managed Service became the perfect solution for a veteran Qualified ...

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A veteran Qualified Intermediary company, QI ABC, facilitates roughly 25-30 exchanges per month. They want to reduce their workload as they transition toward retirement, but they are not ready to shut down shop altogether. QI ABC realizes the value of the business is tied directly to the principals. Therefore, selling the business is not a lucrative option unless they maintain working in the business at a similar level, defeating the purpose of scaling down. QI ABC looks for options to begin enjoying the fruits of their labor, while maintaining a revenue stream that supports semi-retirement. But their options are sparse. The QI could reduce the number of 1031 exchanges they will accept and process, but eventually this erodes their reputation and eventually will eliminate their revenue stream entirely. Learn how Accruit’s Managed Service, a white-label QI solution for 1031 exchanges, became the solution for this Qualified Intermediary.

The Facts

QI ABC has been in the 1031 exchange business for over 30 years, the partners are both gearing toward retirement and are looking for options to reduce their workload, maintain a legacy, and make a profit off the business they built over to past three decades.

The Problem

Knowing the desire to retire was on the near horizon, QI ABC started to look at their options for entering semi-retirement and turning a profit from the long-term business they built. When QI ABC investigated selling their Qualified Intermediary business, they realized the value in their QI business was themselves. Their QI business was built upon their industry reputation and without them involved in the day-to-day, QI ABC was not valuable to an outsider buyer.

QI ABC knew that the status quo was not a solution because they could not maintain the same workload and output as they look to enter semi-retirement.

QI ABC had run out of ideas and options, but they were committed to finding a solution as they entered their golden years.

The Solution: Managed Service through Exchange Manager ProSM

QI ABC received an email from fellow FEA member Accruit about their Managed Service offering through Exchange Manager ProSM and began a conversation about business possibilities going forward. Knowing Accruit was a renowned player in the 1031 Exchange industry, QI ABC, determined that a turnkey, white-label Qualified Intermediary solution, might just be the solution for them.

Implementing Managed Service, QI ABC can continue to offer 1031 services “in-house” under their existing brand. To their client base, there is no noticeable change in service to get a 1031 exchange started. Once the 1031 exchange is initiated by QI ABC, the Exchange Manager ProSM team of 1031 experts work behind the scenes as the back-office qualified intermediary to facilitate the 1031 exchanges.

Upon further conversations with Accruit on their Managed Service offering, QI ABC learned of the following benefits they would receive as a Managed Service client:

<ul>
<li>QI ABC, would leverage the buying power of a national QI which could earn them more revenue from depository funds</li>
<li>QI ABC’s branding would remain intact and pre-designed marketing collateral would be provided</li>
<li>QI ABC is electronically notified and informed on every step of the 1031 process</li>
<li>QI ABC’s workload would be reduced by roughly 80%</li>
</ul>

Implementing Managed Service would allow QI ABC to continue business as usual without sacrificing transactional volume. Yet, they would greatly reduce their internal efforts because Accruit’s Managed Service is facilitating the actual 1031 exchanges through the industry’s only 1031 exchange workflow solution.

The Result

QI ABC couldn’t be happier with their decision to implement Managed Service. After three decades, within nine months, QI ABC saw the following benefits:

<ul>
<li>Workload reduction by roughly 80%</li>
<li>Leveraged the “buying power” of a larger QI, producing up to 300% of previous revenue per transaction compared to Managed Service</li>
<li>Took first uninterrupted vacation in many years</li>
</ul>

As a seasoned Qualified Intermediary company, aware of the due diligence required to set-up a new 1031 Exchange, QI ABC, seamlessly transitioned into Managed Service. Accruit’s Exchange Manager ProSM, the patented 1031 exchange workflow, made the data and document collection and delivery secure and timely for all parties involved.

Are you a QI looking for options? Maybe you want to scale back your personal efforts in your business without affecting your revenue. Maybe you want to leverage the “buying power” of a larger QI?

Learn more about <a href="/managed-service" title="Managed Service for a Veteran Qualified Intermediary">Managed Service</a> and how it could benefit your existing Qualified Intermediary operations.

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Case Study: Veteran Qualified Intermediary Shifts to Managed Service Tripling Revenue

01/24/23

This is a true story, based on facts. Learn how Managed Service became the perfect solution for a veteran Qualified ...

Video: Steps of a 1031 Exchange

01/23/23

Watch this quick video to learn about the steps of a 1031 exchange, as well as some of the requirements you ...

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Watch this quick video to learn about the steps of a 1031 exchange, as well as some of the requirements you must meet for a 1031 exchange.

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Video: Steps of a 1031 Exchange

01/23/23

Watch this quick video to learn about the steps of a 1031 exchange, as well as some of the requirements you ...

Video: Personal Use Property in Relation to a 1031 Exchange

01/23/23

Real property held for investment or use in a trade or business qualifies for a 1031 exchange, however property intended for ...

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Real property held for investment or use in a trade or business qualifies for a 1031 exchange, however property intended for personal use would not qualify for a 1031 exchange. Learn more about what makes a property valid for a 1031 exchange or invalid.

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Video: Personal Use Property in Relation to a 1031 Exchange

01/23/23

Real property held for investment or use in a trade or business qualifies for a 1031 exchange, however property intended for ...

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