The Investor’s Goal: A Tax-Efficient Exit Strategy for Future Generations
When planning for the future, real estate investors often face the challenge of balancing wealth preservation, tax efficiency, and estate planning. One investor, seeking to protect his family’s legacy while ensuring a smooth transition of wealth, turned to RealtyMogul for a strategic solution.
Steve Haskell, VP at RealtyMogul, and his team, helped execute over three separate transactions totaling $800,000. The exchanger executed a 1031 exchange into Delaware Statutory Trusts (DSTs), setting himself up for a 721 UPREIT (Umbrella Partnership Real Estate Investment Trust) conversion in the next 2 to 3 years.
His primary concern? That his children—who were the beneficiaries of the trust holding the real estate—could eventually inherit the investment, receive a step-up in basis, and liquidate their holdings separately without inter-conflicts or tax complications.
This case highlights how RealtyMogul’s due diligence process and investor platform provided the transparency, security, and strategy needed to accomplish his goals.
The Strategy: A 1031 Exchange into a DST with a 721 UPREIT Pathway
1. Investing in DSTs with a Future REIT Acquisition
Rather than purchasing individual real estate assets, the investor strategically selected three DST investments that were set to be acquired by a multi-billion-dollar REIT—one with a history of never missing a distribution or liquidity window.
By structuring his 1031 exchange into DSTs, he positioned himself to eventually convert his holdings into REIT shares via a 721 UPREIT, providing long-term flexibility and estate planning advantages.
2. Why a 721 UPREIT?
A 721 UPREIT conversion allows an investor to exchange DST-held real estate into operating partnership units (OP units) in a REIT, offering several benefits:
- Tax Deferral: Just like a 1031 exchange, a 721 UPREIT defers capital gains taxes indefinitely.
- Liquidity & Diversification: REIT shares provide fractional ownership in a diversified, professionally managed portfolio rather than a single property.
- Estate Planning Simplicity: Unlike traditional real estate, REIT shares can be easily divided among heirs, reducing the likelihood of family disputes.
This structure ensured that his children could inherit the REIT shares with a step-up in basis, eliminating capital gains tax burdens upon inheritance and allowing each to liquidate their shares independently.
Why He Chose RealtyMogul
1. Trust in RealtyMogul’s Due Diligence Process
The investor selected RealtyMogul because of its rigorous due diligence on DST offerings, ensuring that each property had a clear path to REIT acquisition. With RealtyMogul’s history of thorough underwriting and conservative investment selection, he felt confident that his investment met his long-term financial and estate planning criteria.
2. Seamless Tracking with the RealtyMogul Investor Portal
Managing multiple DST investments can be complex, but RealtyMogul’s investor portal simplified everything. The platform allowed him to:
- Track all his investments in one place
- Monitor distribution history & property updates
- Access essential documents and tax reports with ease
Rather than managing separate investor portals with different sponsors, he could track all investments under one dashboard, making portfolio management effortless.
The Outcome: A Tax-Advantaged, Future-Proof Investment Strategy
By executing his 1031 exchange into DSTs with a 721 UPREIT plan, the investor successfully:
- Deferred capital gains taxes while positioning for future liquidity
- Eliminated property management responsibilities
- Structured his estate to prevent family disputes
- Postured for his children could inherit a step-up in basis and liquidate independently
- Invested in a multi-billion-dollar REIT with a strong track record of distributions
For investors seeking a tax-efficient, estate-friendly, and long-term real estate strategy, this case demonstrates how 1031 exchanges, DSTs, and 721 UPREITs can be powerful wealth management tools.
Thinking About a 1031 Exchange?
If you’re considering a 1031 exchange and want to explore DSTs with a clear pathway to a 721 UPREIT, RealtyMogul’s platform and expert team can help you navigate the process. Explore your options today!
LEARN MORE ABOUT 1031 EXCHANGE
Disclosure - 1031 Exchange Risk
Internal Revenue Code Section 1031 (“Section 1031”) contains complex tax concepts, and certain tax consequences may vary depending on the individual circumstances of each investor. RM Securities and its affiliates make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about the tax aspects with respect to your particular circumstances. Please note that RealtyMogul does not provide tax advice.
This article is for informational purposes only, and is not a recommendation or offer to buy or sell securities. Information herein may include forward looking statements and is for informational purposes only. Forward-looking statements, hypothetical information, or calculations, financial estimates and targeted returns are inherently uncertain. Past performance is never indicative of future performance. None of the opinions expressed are the opinions of RealtyMogul. Advice from a securities professional is strongly advised, and we recommend that you consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks and tax consequences associated with any real estate investment. All real estate investments are speculative and involve substantial risk and there can be no assurance that any investor will not suffer significant losses. A loss of part or all of the principal value of a real estate investment may occur. All prospective investors should not invest unless such prospective investor can readily bear the consequences of such loss.
RealtyMogul and its affiliates are not registered as a crowdfunding portal. Unless stated otherwise in writing, RealtyMogul and its affiliates do not offer brokerage or investment advisory services to the Platform’s individual users. RM Adviser, LLC, a wholly owned subsidiary of RealtyMogul, is an SEC-registered investment adviser providing investment management services exclusively to certain REITs and single purpose funds. Past performance is not indicative of future results. Forward-looking statements, hypothetical information or calculations, financial estimates, projections and targeted returns are inherently uncertain. Such information should not be used as a primary basis for an investor’s decision to invest. Investments in real estate, including those offered by sponsors using the RealtyMogul platform, are speculative and involve substantial risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital.