How Can I Exchange My Investment Property into a Real Estate Portfolio?

Posted May 7, 2022

how can i exchange my investment property for a real estate portfolio?-481337750

If you own an investment property, exchanging it into a real estate portfolio can help you diversify your wealth. Moving from a direct property management model to a portfolio of fractional real estate ownership can provide you with diversification and access to different kinds of properties you may not be able to access on your own.

Learn how to exchange your investment property into a real estate portfolio and why using a 1031 exchange strategy can help you diversify your wealth to seek continued growth.

Benefits of Building a Real Estate Portfolio

When you initially purchase a real estate investment property, you may simply intend to collect rent to make a passive income. While this can net you profit over time, it comes with property management challenges like collecting rent, maintaining the property, and managing tenants.

This type of investment model can limit your investment potential and doesn’t build up your real estate portfolio. Moving from a property management structure to a diversified investment approach may yield multiple benefits, including:

  •       The potential to seek steady cash flow
  •       Passive property management
  •       Investment diversification
  •       Tax benefits

Transitioning Out of Property Management to a Real Estate Portfolio

One option for transitioning out of a limited property management investment to a diversified real estate portfolio is to use a 1031 exchange. A 1031 exchange allows you to transfer investment property sale proceeds into a like-kind asset and defer capital gains taxes during the process.

This strategy lets you keep more of your wealth working for you toward new investments. It also helps you build your real estate portfolio by allowing you to roll your proceeds over into a new investment venture like a Delaware Statutory Trust (DST).

A DST is a type of investment that allows you to acquire fractional ownership into commercial properties that you may not have the funds for on your own. DSTs also provide you with the potential to seek passive income. Examples of DST properties include:

  •       Multi-family apartment buildings
  •       Medical offices and retail properties
  •       Industrial facilities
  •       Self-storage properties

With a DST, you can diversify your real estate portfolio, which may lead to more investment opportunities.

How to Invest in a DST?

If you are considering a DST, you have a few different options. Opportunities include purchasing from a DST Sponsor, acquiring a DST in a resale venture, or conducting a 1031 exchange on an existing investment property.

To purchase a DST security from a Sponsor, partner with a broker-dealer who works in the industry and is familiar with DST Sponsor opportunities. A qualified broker can vet potential DST Sponsors and contact you when a suitable investment venture arises.

To acquire a DST through a 1031 exchange, work with a real estate tax professional who can guide you through the process. Several requirements surround 1031 exchanges, including property identification, fair market value, and closing date allowance. A professional can help ensure your 1031 exchange goes smoothly and results in acquiring the DST property.

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. 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. Diversification does not guarantee a profit or protect against a loss in a declining market.  It is a method used to help manage investment risk. No public market 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 particular program will be achieved. The actual amount and timing of distributions paid by 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. All real estate investments have the potential to lose value during the life of the investment. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. Programs that depend on tenants for their revenue may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants. Costs associated with a 1031 transaction may impact investor’s returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.

Learn Ways To Help Build Long-Term Real Estate Wealth

Get Tips For Managing Real Estate Wealth
Download eBook


Get Tips For Managing Real Estate Wealth

Learn Ways To Help Build Long-Term Real Estate Wealth

Learn new ways to use real estate to pursue your wealth goals.

By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received.