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1031 Exchange Alternatives

September 20, 2017 06:22PM
So, here is my question. After you have engaged in several 1031 exchanges, your options seem limited if you don't want to keep exchanging into bigger and bigger properties.

Formally, there are alternatives like Delaware Statutory Trusts, TICs (tenant in Common investments), upreits. But I can't really find very many investors who have anything good to say about these options.

But the returns on these type of investments aren't inspiring and the investor generally has no control of his/her investment. Whether the investment will turn out to have any liquidity is also open to question. There are also alot of fees associated with the management companies. And it is theoretically possible to lose the entire principal at stake. Alot of commercial landlords who own retail properties that used to be considered failsafe now are very nervous due to the ascendancy of Amazon and the fact that many chain stores are defaulting on their leases.

One can pay the taxes, although having done a couple decades worth of exchanges, this seems like alot to pay.

One final alternative is that one can invest in commercial properties that have enough income that management would be included with the purchase.

Apartments and/or mobile home parks seem to have OK margins, although both kinds of assets seem like they have been appreciating at a very high rate for a very long time. How long can you keep going up in value?

One interesting stastistic I heard recently was that self storage had increased alot in the last couple years---maybe by default because all the other asset classes (apartments and mobile home parks) seem overpriced. By contrast, retail and offices seem very iffy right now. Although their values haven't quite crashed yet due to the buyer enthusiasm in the market---based upon the news we are hearing this seems very likely.

Of course, the returns these days aren't all that great on commercial properties in general. but at least the investor has more control and more options.

Since we would like to avoid management headaches, we would really like to have a steady income for retirement. But there seems to be no simple way to arrive at this outcome. One can owner carry paper on properties, but this would end up requiring payment of most of the taxes since you aren't 1031ing into a new property within 180 days. It may be a solution if you wanted to stop managing the property, but it doesn't really seem to help with the 1031 question.

Another possible outcome is to buy alot of single family houses that alot of investors might consider easier to manage. But that would be very pricey in California at the top of the current market----and if you owned them out of state, your management headaches would return anew.

Or you could invest in a group of different types of properties---although you really can't get even remotely reasonable prices unless you buy problem type properties ni this market.

I have heard many investors say that alot of the 1031 investments made at the top of the market turn out badly in alot of instances.

Maybe it is alot to ask to solve this particular quandary. Any suggestions?
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1031 Exchange Alternatives

southland1 3757 September 20, 2017 06:22PM

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