Diversification, Income, & Liquidity
REITs
REITs, or real estate investment trusts, are companies that combine the capital of many investors to acquire or invest in income-producing commercial real estate and related assets.
Why do experienced investors choose REITs?
There are approximately 150 million Americans invested in REITs through 401(k)s, IRAS, pension plans, and other investment funds. By combining assets that exhibit low correlation (such as REITs), investors can work to reduce portfolio risk without sacrificing return potential. Low or negative correlation means that investments behave differently from each other through changing market environments.
Inflation Hedge
Acquiring income-producing properties with built-in rent increases or the potential to increase rents gives stockholders a unique opportunity to keep up with inflation as well as participate in capital appreciation.
Passive Diversification
REITs can be diversified by property type, location, tenant and/or lease term which can help smooth portfolio risk. REIT investors own interests in income-producing properties but there are no management responsibilities to worry about.
Liquidity
REITs are attractive to many investors today because they can offer more frequent repurchase or redemption options based the current per share NAV.
721 Exchange: Sophisticated Tax Deferral Strategy
A 721 exchange exercises a tax provision that allows for the non-recognition of gains when assets are contributed to a partnership in exchange for partnership interests. Leveraging an UPREIT, income-producing property owners may defer taxation of capital gain until partnership interests are redeemed for REIT shares or cash. Shares of the REIT can typically be liquidated at designed times, in accordance with the terms of the REIT.
What is a REIT?
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Some REITs trade on major stock exchanges, and they offer a number of potential benefits to investors.
What is an UPREIT?
REITs often hold their portfolio of real estate through an operating partnership, which structure is known as an Umbrella Partnership Real Estate Investment Trust, or UPREIT. This allows holders of real estate to exchange property for economic interests in the REIT in the form of OP Units of the operating partnership by contributing that property via a 721 exchange.
The 721 Exchange process
Step One
Sell your property.
Step Two
Money is invested in a DST for 2 years.
Step Three
REIT acquires the DST and investors receive OP units.
Step Four
You are invested in the REIT, have monthly liquidity opportunities, ability to exit at NAV, and monthly income.
Income & Appreciation
An operating partnership that intends to provide regular income through an actively managed portfolio of income-producing properties. Holders of limited partnership interests may experience appreciation of their invested capital if the value of the real properties in the portfolio rises.
Estate Planning
Heirs to limited partners may receive a step-up in the tax basis of their limited partnership interests, effectively eliminating the previously deferred U.S. Federal Income Tax on Capital Gains. Heirs have the flexibility to make individual decisions in respect to the sale of their inherited interests, whereas traditional heirs of investment property may require collective decision making.
Liquidity
A redemption program for limited partnership interests may provide more liquidity than other forms of real property ownership and may allow owners to redeem interests in whole or in part, potentially managing periodic taxable gain recognition in alignment with specific financial goals and objectives.
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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the Sponsor’s Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) 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.
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, potentially adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. 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. Because investor situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
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