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1031 Exchanges F.A.Q.

We work in a broker capacity and represent the various investment companies we choose to work with. We are not contractually obliged to work with any specific sponsor, the only reason we would recommend them to an investor is because we believe they are very good at what they do and have proven to us to be effective over the years working with them.

An investor will never have to deal with a bank at any point in time. The sponsor will structure the debt before a deal is available to investors and typically get much better rates than an individual investor due to the size of the offering. The debt to investors is defined as non-recourse, meaning that you are not personally responsible for the debt, the DST is. The investor assumes whatever debt the DST has already put in place. For example, if the DST has a 50% LTV and an investor allocates $100k, they will also receive another $100k in debt for an overall position of $200k.

A typical DST will structure the debt for 10 years with an initial 5-year interest only period, followed by another 5-year amortization period. The reasoning behind this is to attempt to maximize the cash flow and sell the property close to the 5-year mark.

A sponsor is the company that purchases the property, structures the debt, is responsible for management of every facet of the property from A to Z, then seeks to sell it within a certain period of time. Most will specialize within a given asset class (i.e. Multi-Family, Commercial, Industrial, etc.) and have similar offerings available on a regular basis.

While the trust owns the property, each investor is treated as a beneficial owner by the IRS. For instance, if a property is worth $100M (assuming no debt) and an investor allocates $1M, they would beneficially own 1% of the property. They are entitled to 1% of any income, appreciation and depreciation. It doesn’t matter whether they are the first or last investor, or the amount they invested, everyone is treated the same.

The sponsor is required to provide a tax statement to each investor every year. It will state how much income they received and how much depreciation they can use to offset said income. If an investor is working with a CPA, they can simply turn over this form to them.


1031 Exchange Resources

1031 Case Study

The IRS allows individuals to bypass the capital gains tax on the sale of real estate if they invest the proceeds into a “like kind” investment, effectively creating an exit strategy for assets that are highly appreciated. However, actually pulling this off is no easy feat and requires a considerable amount of timing and knowledge. 

Affluent families have been using this tactic for generations as a means to avoid capital gains and minimize the tax impact of their real estate holdings to their heirs. Like our hypothetical outcome as expressed in the link below, we strive to help you take advantage of this rule, and provide turnkey 1031 exchange solutions that take away the complexity typically associated with this type of transaction.

Breakwater’s Guide to
1031 Exchanges

For investors considering selling a real estate investment and deferring tax payments on their capital gains, a 1031 exchange could be an option for reinvestment. Understanding the complex guidelines for the 1031 exchange process can be challenging. However, with the right professional services, the process can be more convenient and accessible for any Accredited Investor.

FAQ: 1031 Exchanges

Our 1031 Exchange experts answer the most common questions on the subject, including: “What is The History of Tax Deferred Exchanging?” and “What Is The Definition of Like Kind Property?” 

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Keys to Exchanging

The tax deferred exchange of your property completed pursuant to IRS Code Section 1031 doesn’t have to be difficult. However, when dealing with the transfer of multiple properties and their associated transactional logistics understanding the 1031 process is the best strategy for a painless and successful exchange. 

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Breakwater Firm Overview

Breakwater Capital is an Independent Firm and Josh is an investment expert with a wide range of experience. This helps enable Breakwater to find attractive investment opportunities and  tax strategies that other firms may overlook. 

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Delaware Statuary Trusts (DSTs)

REITs & Crowdfunding

With real estate investing becoming more mainstream, some people are left wondering about the differences between the many options before them. Should they invest in a real estate investment trust (REIT), a real estate fund, as a tenant-in-common (TIC), through a Delaware Statutory Trust (DST), or through a real estate crowdfunding platform like Fundrise? All offer co-investment opportunities, but each has its own nuances that may influence how any investor decides to proceed.

Why DSTs are a Popular
Vehicle for Real Estate

What is a Delaware Statutory Trust (DST)? A Delaware Statutory Trust, or DST, is a commonly used structure for those accredited investors looking to fractionally invest in real estate. The primary draw to investing in a DST is that it is 1031 Exchange eligible, meaning that investors who are selling a property can defer paying capital gains tax by investing those proceeds into a DST, which the IRS has ruled qualifies as a “like kind” investment.

10 Reasons to Consider DSTs

Breakwater Capital is an industry leader in offering replacement properties, typically through a Delaware Statutory Trust (DST), for Section 1031 exchange transactions, as well as quality, multiple-owner real estate solutions. Here are 10 reasons to consider DSTs.

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Benefits of Passive Real Estate

One of the reasons that investors often like to invest in real estate is because they like the idea of passive cash flow potential. But what many investors quickly come to realize is that almost all real estate investing is not truly passive.

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Choosing a DST

When you set out to find the right Delaware Statutory Trust (DST) broker for your 1031 exchange, the decision can make or break your investment success. Investors face decisions that require sophisticated evaluations all the time but knowing with whom to invest and trust is vital. 

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Cash Investments in DSTs

Delaware Statutory Trusts are an investment vehicle worth considering for those accredited investors doing a 1031 exchange, but what some investors don’t realize, is that you can also invest in DSTs on a cash basis.

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Exchanging into a DST

The tax deferred exchange of your property completed pursuant to Internal Revenue Code Section 1031 doesn’t have to be difficult. However, when dealing with the transfer of multiple properties and their associated transactional logistics, understanding the 1031 process is one of the best ways to a painless and successful exchange.

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Cash Alternatives

Guide to Alterntive Investments

Most of our clients are either in or nearing retirement and looking for ways to diversify their investments. Alternative investments can potentially add value to an investor’s portfolio as they have historically proven to have the potential to help reduce volatility, mitigate risk, and increase passive income.

Opportunity Zones

Opportunity Zones differ from 1031 Exchanges and DSTs in a number of facets but still provide significant investment and tax advantages.

Why Alternative Investments
are Growing

Alternative assets, once thought of as too risky for individual investors to pursue, are now becoming more mainstream. Investors looking to diversify their portfolios will certainly want to consider their options, including real estate. Investing with a real estate sponsor or fund that has a track record of performance is a way to seek to mitigate the risk otherwise associated with alternative investing.