151: How to 1031 into a PASSIVE Asset
You may know that by the end of last tax year, I sold most of the real estate that I held by myself—as owner and operator?
Why? Well, first of all, I realized that to do real estate right, it really is not ever TRULY passive unless you have a full time operator doing all the work. The other thing that I realized is that for a busy person, finding the right operator with whom to invest passively is often MORE profitable than managing your own property.
A good example of that is Western Wealth Capital—a group that many of you who are part of Investor Club know well. Cofounder and CEO Janet LePage was on Wealth Formula Podcast a few weeks ago and explained the operation that has produced investors annualized returns exceeding 30 percent on average.
Let me tell you from being an owner operator of apartment buildings—it ain’t easy doing that by yourself. That’s why I have really focussed on a team approach to my investing and I know a number of you have made that decision as well. After all, you may think that you love real estate when, in reality, you love all the benefits of owning real estate like excellent returns and unbeatable tax benefits. Participating in limited partnerships can give you all the same benefits without the headaches.
Now, last year I sold a few buildings and ended up with seven figures of capital gains with which to deal. I had to figure out if there was a way around paying the tax man. In my case, for better or worse, a failing business in Chicago provided some significant losses so I didn’t get hammered as badly as I thought I would. But, as a general rule, I would not recommend that as a way to minimize your tax burden. I would have rather paid the tax!
So, if I didn’t have business losses to offset capital gains, what would my options have been? Before I tell you that, let me be clear that I am not a CPA so this is not official tax advice. However, I do happen to have a brilliant CPA so most of you know where I get this stuff.
Anyway, one of my options would have been to invest as much of those capital gains into syndications using bonus depreciation as possible. That would have theoretically knocked out well over half the gains right there and actually allowed me to create equity in the process (let’s get Tom Wheelwright on the show to explain that one). That’s the only option I honestly knew about last year and probably the one I would still use at this point in my investing life.
In recent months, however, I started hearing about another option that I found intriguing called a Delaware Statutory Trust. I had no idea that this was an option for me last year and I’m still not sure I would have used it, but the idea is pretty compelling.
You see, there are options to doing 1031 exchanges with property that you don’t have to manage yourself—and I’m not just talking about a triple net Walgreens which we usually think of in this scenario.
This option that I just became aware of is called a Delaware Statutory Trust. It’s similar to a syndication and limited to accredited investors. However, it is also a very intriguing option for those of you looking to get out of the real estate operating mode who want to avoid taxes and depreciation recapture. I love it when I learn about new things and I can share them with you on this show. That’s exactly what I will be doing on this week’s Wealth Formula Podcast with my guest Leslie Pappas of Archer.
Leslie Pappas acts as Due Diligence Officer for Archer and performs site visits of our offerings. Leslie personally visits and inspects almost every offering prior to presenting them to her investors. Our investors feel more security in knowing that Leslie has seen the properties in which they invest. This is a distinctive factor in choosing to work with Archer over other firms that do not perform this additional work on behalf of their clients.
Leslie has been cited on CNN, ABC, CBS, NBC, FOX and The Wall Street Journal regarding her work in Delaware Statutory Trust (DST) real estate investments. Across her 33 years of experience in investments and financial services, she has participated in over $2.5B in real estate transactions. Leslie is a Real Estate Broker in several states, and holds the Series 7, 22, 39, 63, 65 and 99 Securities Registrations. She is a Certified Commercial Investment Member, a credential that only 10,000 brokers worldwide have achieved. Leslie is also a LEED Accredited Professional and can manage the evaluation, development and redevelopment of projects hoping to achieve LEED certification through the USGBC. Leslie has an MBA from New York University ’82 and a BA from Vassar College ’80. Leslie enjoys her three miniature wirehaired dachshunds, Scout, Lizzie and Jack, and boating.
- Leslie’s venture into real estate
- HOW 1031 EXCHANGES
- DECISION MAKER OF PROPERTY
- TYPES OF PROPERTIES LOOKED FOR
- LONGEVITY OF BUYING SHARES
- PERFORMANCE RECORD
- WHAT IS LESLIE’S ROLE IN ARCHER
- Cashing In Tax Free: The Ultimate Guide To A Tax Free Retirement Using 1031 Exchange and DSTs