What you need to know
about 1031 Exchanges
Nelson Brothers 1031 Solutions
- NB puts together 1031-eligible investments in real estate.
- Enable smaller investors to own institutional-grade properties.
- Properties can be turnkey, with loan, price and strategy in place for potentially simpler 1031.
- Eliminates the hassles of tenants for landlords.
Keys to a Successful 1031
- Sales proceeds must go directly to Accommodator.
- 45-days from close to identify replacements.
- 3 rules for identification: 3-property, 95%, 200%.
- 180-days from sale to close on replacement(s).
- Must maintain the same ownership entity.
- “Upleg” must have same sales price or higher.
Benefits to 1031 Exchange
- Defer capital gains taxes by reinvesting in real estate.
- Keep money potentially working on growing for you.
- Exit strategy for highly appreciated equity that may help eliminate the hassles of tenants.
1031 vs. Paying the Tax
- 32% to 37% is the average tax hit factoring in state/federal capital gains recapture taxes.
- The 1031 allows investors to keep that money working and growing for them if the properties are reinvested.
- By paying the tax, an investor should consider and calculate how long it would take a new investment to make up funds paid in taxes.
- Then factor in potential returns on the new 1031 property and factor how long new investments would take to catch up.
NB focuses on assets and the firm belief that they may be less correlated to the economy and to financial markets. The goal is to secure properties that have a track record of stable occupancy in what NB views as steady markets.
NB typically focuses on collegiate housing, as historical enrollment trends tend to demonstrate a stable incline. NB believes that properties located near campus can potentially leverage the historical stability of a university.
While every property offered is different, NB typically targets properties that are well-occupied and/or that have demonstrated stable occupancy and profitability. With today’s lower interest rates and cap rates still relatively high in certain markets, NB believes this may be an excellent time to pursue income-oriented assets.
NB employs a variety of strategies to potentially increase the value of a target property. In some cases, NB may use renovations or upgrades to increase rental rates or NB may simply buy and hold a property believed to be in a higher growth market. While NB targets appreciation in value as a high priority, appreciation tends to be speculative and market-driven and therefore difficult to forecast or project.
Historically, most NB properties have allowed for pass-through depreciation to investors. In these cases, NB will provide a 1099 or a K-1 that helps investors defer income taxes by depreciating hard assets on a pre-set schedule. It is our goal to continue this trend.
All real estate involves risk. Properties can be subject to market fluctuations, seasonal fluctuations, vacancy, higher-than-expected expenses, among others. In some cases this may lead to a reduction in distribution levels or even foreclosure in extreme cases. Please consult the Private Placement Memorandum (PPM) of any Nelson Brothers offering for a more complete list of potential risk factors.