Owners of investment and business property considering the sale and reinvestment of their real property have choices that are far greater than their own neighborhood. Section 1031 Exchanges require that the new or replacement property be “like-kind” but that definition has expanded to include diverse investments; here are three examples of replacement property opportunities:
Tenant-in-common (TIC) ownership provides an opportunity to own institutional property without the hassles of managing tenants. Total annualized returns range from 6% to more than 15% with the right property. Now you can collect your earnings from the management company and never again talk to a tenant!
One of our favorite products in this area (fractional ownership for the rest of us) is offered by Rockwell Debt Free Properties in Salt Lake. Rockwell specializes in developing and offering up to exchangors single tenant, debt free properties that are leased by national credit tenants. These investments are extremely conservative and are providing very nice returns.
An UP-REIT is an umbrella partnership real estate investment trust. Once again, exchange your current investment property and purchase an interest in an UP-REIT. REIT’s regularly carve off one or more buildings from their diverse holdings for investment clients to acquire using 1031 funds. After a period of seasoning, the Up-REIT is folded back into the REIT.
Oil and Gas Leases; this should give you an idea of how broad the definition of “like-kind” is when it comes to real estate. Investors receive long leasehold interests to the percentage of royalties purchased. Generally these will be mineral rights for oil or gas properties. These have existing cash flow and documented stability and growth. Properties incur no monthly expense or liabilities related to additional development, making it easier to track their performance and yield. Thanks to an active auction market, liquidity is available. Also, these interests may be exchanged again later.
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