Family patriarch sells a building to create a real estate legacy for his family

Our team at Fortitude Investment Group often receives referrals from attorneys, CPA’s, and Qualified Intermediaries to help clients with their 1031 exchanges.  Many of these introductions involve large, complex cases that require creative solutions which help clients maximize their tax deferral benefits, enhance investment income, and preserve family wealth.

The following is a recent case which illustrates a circumstance of how we helped a client accomplish that trifecta.

We have a long relationship with an attorney who asked us to contact their client, Jay Williamson*, who was selling a $25 million multifamily complex on Long Island. He intended to use some of the proceeds to help his daughters financially and reinvest the remaining proceeds in a passively managed real estate asset.

Recognizing there would be significant tax obligations in this transaction, the attorney suggested that Jay meets with our Fortitude Investment Group team to explore different options that could defer capital gains taxes.

Upon meeting with Mr. Williamson, we discovered he had several motives for selling his investment property. At 75 years of age, he did not have the energy or desire to continue managing his real estate investment assets. He also wanted to provide a meaningful financial gift to his two grown daughters and their families, by completely paying off their home mortgages and other debt obligations. He intended to use $4 million of the proceeds from the sale for this specific purpose. Lastly, he wanted to reinvest the remaining proceeds in a property that would not require active day-to-day management and could generate tax efficient income.

After several meetings with Mr. Williamson, we proposed a solution which we believed would help accomplish all his objectives while also shielding him from the capital gains tax he would incur by taking $4 million in boot from the property sale.

By sourcing and identifying a portfolio of select properties to be held in a newly formed Delaware LLC, we:

• Provided a liquidity solution he needed by investing $8 million into an all-cash storage facility. Soon after closing, the sponsor secured financing, enabling Mr. Williamson to withdraw the $4 million for family use without a capital gains tax penalty. 
• Created enhanced investment income opportunities by investing in high-growth, tax-friendly states, including Texas, North Carolina, Georgia, Florida, Oklahoma, Wisconsin, Arizona, and Maryland.
• Helped manage investment risk and protect generational wealth by diversifying the portfolio with various real estate asset types, including multifamily, self-storage, medical office, and healthcare.

Ultimately, Mr. Williamson was able to accomplish his goals and more, with this challenging transaction. The Fortitude Investment Group team handled everything from beginning to end, including due diligence on the investment properties, coordination with the Qualified Intermediary (QI), adherence to deadlines, and all related paperwork processing. Now, distribution income from his passive investment properties is deposited directly into his accounts, and he has the free time to spend with his family.

Please contact us at Fortitude if you have any questions about this topic!

Have you read our latest Ebook, The ABCs of DSTs? 

* Name of client has been changed for this blog post.

There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, 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 potential loss of the entire investment principal. Past performance is not a guarantee of future results.  Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) 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.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS

The case study does not reflect actual clients. Any reference to securities is based upon historical data that is public sourced. No statement made herein is to suggest stock market performance or future performance, and no case study is used to imply future performance. The case study is intended to illustrate services available through the adviser. They do not necessarily represent the experience of any clients. Fortitude Investment Group does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. 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.