Our team at Fortitude Investment Group often collaborates with a multitude of professionals: Real Estate Brokers, CPAs, Attorneys, Qualified Intermediaries (QI’s), etc. They will put their clients in touch with our team when questions arise on the topic of tax-deferred investment options and 1031 exchange replacement solutions. Just as we defer to the professionals when it comes to tax and legal advice, we seek to be a resource for clients with securitized real estate investment questions whenever there is a need.

The following is one such example of our team collaborating with a commercial real estate broker to provide value to his client and his business. By including our team in the conversation and offering an alternative solution for the client, the broker was able to win the listing for his business while also providing the connection for the client to have access to a turnkey, passive replacement solution for their exchange. 

By attending a session of our “Prospecting Using the 1031 Exchange and DST” class for real estate professionals, the broker learned which are the right questions to ask and the tell-tale signs to spot a potential 1031 exchange client. Shortly after, he identified a prospect that fit the criteria:

A couple who had purchased and managed their commercial property for 17 years, having enjoyed significant appreciation in value. Originally purchased for $500,000, the property was now worth approximately $2,500,000, despite below-market rents. The property had benefited significantly from the ongoing development of luxury and high-end real estate in the vicinity. 

While inflated prices may make a sale attractive, that appreciation can be a double-edged sword. A six or seven-figure tax liability is enough to make anyone think twice. Recognizing that the client might be a fit for a 1031 exchange and passive replacement investments, the broker immediately put us in touch with the client. 

Through education on our process and reviewing all suitable replacement strategies, the client was able to become comfortable with the idea of listing, exchanging, and relieving themselves of management responsibility, all while deferring six-figures in tax liability.

After working through our comprehensive process to ascertain client goals and preferences, it was decided the client was best suited to exchange into a diversified portfolio of passive DST investments and provide the following potential benefits: 

• Passive income potential with a hands-off investment in the Delaware Statutory Trust, which allows investors to own fractional interest in large, high-quality real estate assets that are actively managed by an institutional real estate company.¹
• Geographic and asset-class diversification to help manage risk, by distributing the exchange investment among multifamily, retail, and self-storage assets in Florida, North Carolina, Louisiana, Georgia, and Illinois.
• Potential for full tax deferral in their 1031 exchange, with the entirety of their exchange proceeds down to the last penny, invested across eight different DST investments. By deferring a six-figure tax bill, the client can keep more of their proceeds working for them.

The Fortitude Investment Group team brought a white-glove approach to the transaction, handling all aspects of the replacement property purchase, including providing the appropriate investment properties, coordination with the Qualified Intermediary (QI), adherence to deadlines, and all related paperwork processing. This provided the client with a confident experience and helped bolster their relationship with their Real Estate broker.

For more information on how we can help you, contact us today!

¹ Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.

Because investor situations and objectives vary this information is not intended to indicate suitability for any individual investor.  

The case study includes a testimonial from a client that may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. This client was not compensated for their testimonials.

There are material risks associated with investing in private placements, Delaware Statutory Trusts ("DSTs") and real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section.

DST 1031 properties are only available to accredited investors (typically defined as having a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years; or have an active Series 7, Series 82, or Series 65).  Individuals holding a Series 66 do not fall under this definition) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.