How to 1031 Exchange into Commercial Multifamily Properties

1031 Exchange OptionsI’ve been in discussions with a few of you regarding 1031 Exchange options and how you can transfer out of non-performing or headache inducing residential properties into one or more of our stable multifamily investments.

I’m guessing there are even more within our community that I haven’t spoken with directly that also want to know how this works.

This post outlines the key considerations for using a 1031 Exchange as a means to invest with 37th Parallel Properties.

What is a 1031 Exchange?

You can read an overview post here or there is an excellent infographic on the process created by a 1031 Exchange intermediary company (i.e., they don’t offer investments, they just help you ensure the exchange stays compliant).

In general, a 1031 Exchange allows you to sell a property and then defer the capital gains by re-investing from one project into another “like-kind” project.

It is a very powerful wealth amplification tool.

Your returns can be magnified by 20% (typical long-term capital gains rate) or more depending on your situation.   If you have a $500,000 gain on a property you’ve held for 10 years that’s $100,000 of tax (at a minimum) deferred and fully reinvestable in the next asset and providing even more current income and equity growth into the future.

Again, you can read more about the specifics of a 1031 Exchange via the two resources noted above.

Do you qualify?

There are several conditions you need to consider when evaluating a 1031 Exchange, but here are the first three as a guide.

1. Do you have like-kind property that you have not sold yet? 

To exchange into commercial multifamily investments (income producing real estate) you will need other income producing property to sell.  This could be a 1-4 unit rental property, rental condo, strip retail center, small medical office building, etc. Generally, it just needs to be an income producing real estate asset.

2. If you have sold like-kind property, did you setup a 1031 Exchange and are you still within your 45-day next investment identification window?

This is the most time compressed scenario, but it still may be worth evaluating if you would like additional exchange options.

3. Is the capital gain you want to defer worth it?

Now, I am a major proponent of minimizing your taxes as much as possible, but sometimes it just doesn’t make sense.  In our experience, any capital gain of less than $50,000 is – in all likelihood – too small to worry about a) setting up the exchange and b) dealing with the downstream restrictions and considerations on your 1031 investment.

Should we talk?

As our investor family grows and we move into larger and more frequent acquisitions and refinance events every year, we will have more and more opportunities for investors to use 1031 Exchanges to transition into stable-growth income producing apartment assets.

If you have lazy real estate assets that are not generating the economic results you want or are just too much headache, I would highly encourage you to chat with us to see if we can help you.

If you are currently an Approved Investor and we have already spoken regarding your 1031 situation, please Email me an update and let me know the status of your transaction.  We have a few projects in the pipeline that could all be good fits for 1031 investors.

If you are currently an Approved Investor and we have not yet spoken about your 1031 Exchange, please Schedule time with me as soon as possible so that we can review your options and verify if and in what way we can help you best.

If you are not an Approved Investor then I would strongly encourage you to Connect with Don Duncan (our Senior Advisor) to get direct access to the best risk-adjusted return asset class available – commercial multifamily apartments.

Could a 1031 Exchange accelerate your wealth?

Contact us today.  We are here to help you.

Chad A. Doty (CEO, Co-founder)

18 Ways You Can Invest in Multifamily Apartments

I was completing a Founder’s Call with one of our new Approved Investors recently and they asked a great question I have been meaning to share with our entire community for some time now.

Multiple Options allow you to invest in commercial real estate

He asked, “What are all the ways someone can invest with 37th Parallel or multifamily apartments in general?”

In this article, I’ll answer that question and highlight some key considerations you need to keep in mind for each investment source.

Before you can invest with 37th Parallel Properties we need to establish if you are suitable for investments of this type and that you have satisfactorily determined that we are a fit for their investment needs.

In other words, are we a match? Once we establish that match we can begin to discuss the funding options below.
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Acquisition Announcement – Timber Run Apartments

Richmond, VA – November 5, 2013 − 37th Parallel Properties (“37th Parallel”), a total return focused commercial multifamily real estate investment firm, announced today it has recently closed on Timber Run Apartments, a multifamily property located in Houston, TX.

TR Pool 0619

Timber Run Apartments, located at 13000 Woodforest Boulevard, Houston, TX, is a 120-unit apartment complex made up of 64 one-bedroom and 56 two-bedroom apartments.

Chad A. Doty, CEO of 37th Parallel commented on the acquisition, ”We are pleased to acquire another property in the Houston market. The economic conditions in Houston are superb for multifamily investors. Houston has added more jobs than any other city in the country in the past year, and with the planned upgrades at the Houston Port, this growth will continue for several more years.”

Timber Run represents the third acquisition by 37th Parallel in the Houston market and is located less than 2 miles from Riverwalk Apartments. Dan Chamberlain, COO of 37th Parallel noted “The economies of scale with having two properties so close to one another will benefit investors in both projects. We have already implemented cost savings in our landscaping and property management services, and will continue to evaluate and reduce costs.”

Property amenities include a clubhouse, swimming pool, washer dryer hook-ups and a laundry facility.

37th Parallel Properties provides commercial multifamily investment and asset management services for select private clients across the United States and Internationally. To learn more visit www.37parallel.com or call 888.837.3720.

How AMT (Alternative Minimum Tax) Affects Multifamily Investors

Disclaimer!

The-avoidance-of-taxes-2

I am not a tax professional nor do I claim to be. The commentary and opinion expressed in this article are to give you a baseline understanding of the issue and ways in which we think about it as active commercial real estate investors and educators. It is incumbent upon you to talk with your CPA, Registered Agent, or Tax Attorney to get qualified tax advice regarding Alternative Minimum Tax and the best ways to minimize your exposure.

In a nutshell though…

If you are paying AMT you are by default paying more tax.
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How Inflation is Consuming Your Stock Investments

Every year, inflation eats away at your portfolio.CRE as Inflation Hedge

Inflation is averaging 2.5% a year for the past decade and a half. Your portfolio must have grown almost 30% in the same time period – just to keep it’s true value.

With the S&P 500 still trading at the same levels as 13 years ago, many investors are looking at portfolios that show no growth and in reality have declined in true value by over 25%.

Traditional Investing Offers Few Solutions

Investors have few options when it comes to conservative investments that also hedge against inflation.

Traditional advice tells you the ideal inflation hedge would be gold or other precious metals. While these assets typically appreciate nicely during high inflation, they are also extremely volatile during these cycles. Further, these investments offer no yield and have no tax advantages.
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