At 1031 Equity Exchange, LLC, our primary goal is to help our clients reap the tax benefits of a 1031 Exchange. Whether you are a seasoned investor or looking to execute your first tax-deferred exchange, our experienced team of investors and commercial real estate brokers stand ready to assist you in any capacity.
At 1031 Equity Exchange, LLC, we believe that building wealth is a multi-step process. For this reason, we are committed to helping our clients throughout the entire wealth creation process. In order to facilitate this, we offer Deal Structuring to all of our clients.
Deal Structuring is an integral – and often overlooked – aspect of most successful 1031 Equity Exchanges. In fact, it is one of the first steps in most exchanges. Before you can trade your existing property for a replacement one, you need to define the parameters of the deal.
When multiple investors are involved, this can become complicated.
Imagine that you want to exchange your commercial real estate property valued at $500,000. You have $100,000 of equity in the property, and decide to reinvest the entire amount into a new property through a 1031 Exchange. However, you want to invest your equity in a property that is valued at $1.5 million. To do this, you will need additional investors to buy the property all cash or a load to leverage the purchase.
Deal structuring can be any combination of new investors and leg-up investors. A 1031 Exchange can involve one or more General Partners and any number of Limited Partners. No matter how you wish to set up your commercial real estate investment, we have more than 25 years of experience in structuring partnerships for 1031 Exchange transactions.
There are two major steps to deal structuring. The first step is bringing together a group of like-minded investors with compatible investment goals and objectives. The second step is structuring a deal that is tenable to all parties involved. At 1031 Equity Exchange, LLC, our nationwide network of motivated buyers and sellers enables us to put together the perfect investment group for your commercial real estate goals.
The following chart illustrates a hypothetical deal structure involving four investors and a $1 million commercial real estate asset. As you can see, each of the partners invested $250,000. At 1031 Equity Exchange, LLC, we specialize in putting together investment deals and connecting you with like-minded investors.
Limited Partnerships vs. Tenancy in Common
When a group of investors decides to purchase a property, they can either form a Limited Partnership (LP) or a Tenancy in Common (TIC). This is a decision that must be made during the process of Deal Structuring.
In a Limited Partnership structure, the asset is owned by the partnership, not the individual investors. Each investor owns a percentage of interest in the partnership. The shares are determined by how much money each investor contributes. In a Limited Partnership, each of the investors must agree to the exchange. If an investor does not want to do a 1031 Exchange, his interest in the partnership can be acquired by the General Partner or by the limited partners depending on the requirements contained in the partnership’s operating agreement.
In a Tenancy in Common, each investor owns an equivalent piece of the property itself. Each investor in a Tenancy in Common can exchange their individual piece of the property for another asset.
Generally speaking, people who want to be directly involved in their investments opt for a Tenancy in Common, while more hands-off investors gravitate toward Limited Partnerships, which are easier to manage.