Disclaimer:
This case study presents the potential benefits that 1031 Exchanges and DSTs can offer investors. This is merely an example; every investor situation is different and can be viewed as such.
Steve and Cassandra purchased an apartment complex comprising of 28 units in Oregon in 1995 for $1,000,000. They held onto the property for 26 years until 2021 when they decided to sell it for $3,700,000. They wanted to sell the property as it was becoming difficult and expensive to maintain, and they wanted to reduce their workload.
Steve and Cassandra faced two major issues. Firstly, the property had been successfully depreciated over the 26 years they owned it, so their basis was very low. They were looking at a large tax bill that would wipe out over 30% of their appreciation due to taxes. Secondly, they wanted to simplify their lives and become hands-off of property management, but they still needed income and tax savings.
When they approached us, we educated them on our services and how we could help them. To address the first issue, we leveraged section 1031 Exchange of the IRS tax code to defer their taxes into another investment-use property. To solve the second issue, we recommended four DSTs that could give them a competitive income while also providing the tax benefits they needed by utilizing the 1031 Exchange to invest in the DSTs.
Steve and Cassandra were happy with the outcome and the preservation and re-investment of their wealth into high-quality real estate opportunities. This allowed them to retire from their management roles. We were successful in completing their 1031 Exchange, deferring all taxes due on the sale, and close on identified DST transactions. The DSTs they invested in were a mix of multifamily, self-storage, and industrial assets.
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