Replacement Property Interests allow a 1031 investor to co-invest with
Each RPI offering is put together by a “sponsor” — a real estate company with experience owning and operating properties comparable to those they offer through our marketplace. Investing in 1031 Replacement Property Interests relieves investors of any landlord obligations. The sponsor is responsible for all operations of the property (management, leasing, upkeep, taxes, insurance, investor reporting, etc.) from the time it is purchased through the sale of the property. Also, the sponsor secures the mortgage, which relieves investors of the headache of obtaining financing.
Replacement Property Interests offered through the Realized marketplace are typically structured as a Delaware Statutory Trust (DST). The DST owns the property (or properties), and each investor owns an interest of the DST. The size of each investor's ownership interest in the DST is proportionate to the amount they invest, relative to all other investors. For example, if the total equity offering is $5 million, an investment of $250,000 represents 2.5% of the DST. If it happens to be an offering with leverage, investors will assume their proportionate share of debt as well, based
Yes, they are one and the same. A direct investment is a property on the Realized marketplace that a single investor (or entity) can purchase from the current owner. Direct investments are acquired through a traditional real estate transaction. The investor/purchaser is responsible for negotiating the purchase price and contract with the seller, requisite due diligence, lining up mortgage financing, closing, and all on-going landlord responsibilities. Direct investments on the Realized marketplace consist of single-tenant properties under long-term triple net (“NNN”) leases, whereby the tenant is usually responsible for paying property taxes, insurance, and maintenance.
A Delaware Statutory Trust is a separate legal entity created as a trust under the laws of the state of Delaware. When used for a 1031 exchange, the DST owns the property (or properties), and each investor holds “beneficial interests” in the DST. For tax purposes, the IRS recognized each investor's ownership in the DST as an undivided interest in the property belonging to the DST. The size of each investor's ownership interest in the DST is proportionate to the amount they invest, relative to all other investors. For example, if the total equity offering is $5 million, an investment of $250,000 represents 2.5% of the DST. If it happens to be an offering with leverage, investors will assume their proportionate share of debt as well, based
For tax purposes, each owner of a DST receives depreciation expense deductions in proportion to the beneficial interest they own in the DST.
The purchase of Replacement Property interests in a DST are much simpler and quicker than sole ownership and require much less paperwork and time.
With a typical minimum investment of $100,000 for 1031 investors and $25,000 for non-1031 investors, Replacement Property Interest offer many advantages over purchasing a property directly, these include:
Deferring Capital Gains and Depreciation Recapture Taxes
Potential of Increased Equity Value Through Subsequent Exchanges
Relief From Landlord Obligations
Diversification Through Potential Ownership of Multiple Properties*
Typically, each DST investor receives their proportionate share of:
Available Periodic Cash Flow Distributions;
Annual Depreciation/Tax Deductions;
Paydown of the mortgage balance, and;
Potential Appreciation when the property is sold
The owners of the DST may complete a 1031 exchange upon the sale of the property, even if was purchased without 1031 exchange proceeds. This is not the case for real estate co-ownership through LLCs, partnerships, corporations or most other entities.
The DST is a pass-through tax entity, and similar to an LLC or partnership; it is not subject to federal income tax, nor the Delaware franchise or income tax.
Because the DST is the mortgage borrower, the lender does not require individual guarantees from investors in the DST, nor does the lender require them to submit personal financial information to qualify for the mortgage loan.
Similar to an LLC, corporation, or limited partnership, the owners of the DST are personally shielded from any liabilities of the property held by the DST. As a result, an investor’s maximum pre-tax loss is equal to the amount they have invested in the DST.
* Diversification does not guarantee returns and does not protect against loss.
The IRS has determined that for a Delaware Statutory Trust (DST) to qualify as replacement property in a 1031 exchange, each investor must be absolutely passive in the on-going operations of the property and any investment decisions.
Owning a beneficial interest in a DST means you do not have ANY operational control over the property, nor ANY control over the sale of the DST property.
There is no secondary market for DST beneficial interests, and substantial restrictions may apply to the transfer of DST beneficial interests.
This is a general explanation, and by no means a comprehensive list of all the disadvantages and risks of investing in a DST. Carefully review the offering materials of the investment you are considering, and seek the advice of financial advisors and legal counsel familiar with your individual situation to determine if an investment is right for you.
Replacement Property Interests (RPI) gained wide-scale popularity in the early 2000’s after the IRS approved Delaware Statutory Trust (DST) and Tenant-In-Common (TIC) co-ownership for 1031 exchanges. Since then, investors have channeled more than $22 billion in equity through exchanges using Replacement Property Interests.1
Investing in properties through RPI give investors the option to complete individual 1031 exchanges in the future. This is not the case when investors co-invest in real estate through a Partnership or Limited Liability Company (LLC).
1. 1031/DST Market Update - 2018 in Review. Mountain Dell Consulting. February 6, 2019.
Yes; investment minimums vary for each offering, but typically are $100,000 for 1031 investors and $25,000 for non-1031 investors. Minimum investment amounts are clearly disclosed on our Marketplace and the respective Offering Materials. Investment minimums are set by the offering sponsor. Please contact Realized if you have specific questions on minimum investment amounts.
Maximum investments vary depending on the size of the investment and are the discretion of the offering sponsor.
For investors with more than $1 million to invest, Realized offers customized 1031 options. Please contact David Wieland at (877) 797-1031 to discuss your needs.
Although there is no public market for an investor to resell their beneficial interests, Realized has established a secondary marketplace where investors can list their seasoned investments they are looking to exit. Although there is no guarantee of a sale, investors can obtain an opinion of value and have the opportunity to receive an offer for their DST interest. If this is something you may interested in, visit https://www.realized1031.com/dst-secondary-market to learn more.
Depending on the offering, there may be resale restrictions. However, many offerings permit the transfer of Replacement Property Interest for estate planning purposes. If you have questions concerning restrictions on the resale of these securities, please refer to the offering materials of the investment you are considering, and seek the advice of financial advisors and legal counsel familiar with your individual financial situation.