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!

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* 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.

Daniel Raupp

Under Daniel Raupp's guidance since 2000, Fortitude Investment Group, LLC has guided clients into over $1 billion worth of securitized real estate investment offerings directly and indirectly, in both the DSTs for 1031 Exchanges and REITs. In the areas of real estate, tax advantaged investments, insurance, retirement, and estate planning, he is able to set up comprehensive, individually tailored client portfolios designed to help remove market volatility and maximize income potential without undue risk.

Inspired by his father’s dedication to customer service and hard work, Daniel directs a range of strategic initiatives in the firm to successfully leverage core competencies in tax efficient investing, alternative investments, and operational excellence to create customer value. His credentials include a Series 7 General Securities Representative (GS) License, Series 24 Principal of General Representatives License, Series 63 Uniform Securities Agent License, and a Life/Accident and Health Agent License. Check Daniel’s background on FINRA’s BrokerCheck.

This is for informational purposes only and is not an offer to buy/sell an investment. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice. Please speak with your legal and tax advisors for guidance regarding your particular situation.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA) Fortitude Investment Group is independent of CIS, CAM, and CIA.

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