Client Background
The clients, a married couple, owned an investment property in Texas and made the timely decision to sell during the post-pandemic market run-up in 2021. The sale generated a substantial capital gain, making a 1031 exchange the logical next step.
The Challenge
While motivated to defer taxes, the clients were hesitant to immediately reinvest. The replacement properties they identified appeared significantly overpriced, and they were concerned about entering a sell-high, buy-high environment simply to meet IRS timelines.
The Strategy
To maintain tax deferral while avoiding rushed decisions, the clients completed a compliant 1031 exchange into a Zero DST. Approximately 30 days later, they executed a tax-free refinance, accessing roughly 86% of the proceeds and placing the funds into a money market account earning approximately 5% at the time.
The Outcome
With the exchange requirements satisfied and liquidity restored, the clients were able to step back and wait for more favorable market conditions. Nearly two years later, after the market had normalized, they identified an attractive acquisition opportunity. Because the debt obligation had already been addressed through the Zero, they were able to purchase the property without bank financing, avoiding high interest rates and additional leverage.
The Result
The clients successfully deferred capital gains taxes, avoided overpaying in a heated market, and ultimately reinvested on their own timeline and terms.
Key Takeaway
A Zero DST can remove 1031 timing pressure, allowing investors to defer taxes while waiting for better opportunities—without forcing a rushed or over-leveraged purchase.