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How Investors are Using 1031 to Gain Control of their Financial Futures in 2024

13th Feb 2024
Panelists from JTC’s upcoming webinar explain how diverse investment products and tools to help exchangers evaluate their options are letting real estate investors find the right strategies for uncertain times.

The last few years have been a whirlwind for the real estate market. With less inventory and rising interest rates, investors looking to perform 1031 exchanges have had to adjust their strategies. Add to this the possibility of changes to the tax code that could reduce or eliminate the benefits of 1031, and you’ll see the bind many investors are in: should they pursue an exchange now while they can, or wait for better market conditions?

Despite the ups and downs of recent years, investors have been executing successful 1031 exchanges and strengthening their portfolios. Structures like Delaware Statutory Trusts are becoming more enticing as investors learn about their benefits. 1031 can be a valuable strategy in 2024, so long as you have the right tools to find and evaluate potential replacement properties.

To help our clients and colleagues better understand the state of the current real estate market and the types of exchanges that are proving successful, JTC is assembling a group of industry experts for an upcoming webinar. Scheduled for February 21, “1031 in 2024: Strategies for Real Estate Investing” will be free to attend for anyone interested in learning from a panel of insiders at the forefront of 1031 and real estate.

In the lead-up to this unique event, we asked some of the panelists about the issues most important for 1031 investors right now and how to make sense of the disparate things we’re hearing about the economy and real estate market.

Real estate in 2024: what can we expect?

With the pandemic halting new construction, the shift to remote work creating vacancies in the office/commercial space, the inflation crisis, worries about a recession, and the potential for changes to the tax code, there has been plenty for real estate investors to worry about over the past few years. Investors may be wondering if we’ve finally ridden out the storm and can expect things to return to normal. But as JTC National Sales Manager and Account Executive Justin Amos pointed out, it’s not that simple.

“I think things are ‘back to normal’ from a desire to meet and do business standpoint, but in my opinion, we will never return to a pre-pandemic or even post-pandemic real estate environment,” said Amos, an expert in tax-advantaged investments like 1031 exchanges, DSTs, and Opportunity Zones. “High-valued real estate with low interest rates is not sustainable for long-term economic success. This is why we have seen an adjustment by the fed over the last year-plus to correct the lack of inventory available. The firms that have built strong fundamental principles can adapt to the new way of conducting business, and those who understand the value of new investment strategies will survive in this new normal.”

“If rates return to the historically low levels that we’re used to, perhaps we’ll get ‘back to normal,’” said Simon Brower, CEO of Upstream 1031, who has worked with thousands of 1031 exchange investors and overseen the placement of more than $1 billion into DST and TIC investments. “Otherwise, the new normal for DST investors will be one in which returns are muted and hold times are extended. During the past 10+ years, our investors were fortunate to see cap rates compress, which caused outsized returns within short periods of time. In the new normal, there will be more emphasis on properties that can increase NOI to help drive total return.”

As noted by Shanaé Mabrie, JTC Director – Client Services – Fund Services, who has facilitated over 10,000 1031 exchange transactions in her 20 years in the industry, turbulent times have helped some investors better understand their options.

“As a result of the pandemic, many investors have become more real estate savvy,” said Mabrie. “Prior to the pandemic, it was often believed that office and retail spaces were a guaranteed safe bet. Now, investors are looking not just at historical data pertaining to the market, but also forecasting to see how they can repurpose existing spaces to fit post-pandemic needs.”

At the webinar, the panel will discuss changes in the market and what their experience tells them about what’s on the horizon. For investors looking at 1031 exchanges and Delaware Statutory Trusts, the question often comes down to “exchange now or exchange later?” But as we see from our panelists’ answers, the right time some are waiting for might never arrive. So is an exchange a good idea in 2024? Our panelists agree it can be, but only if you have the right strategy.

Executing a successful 1031 exchange in 2024

Because prices have been high and inventory limited, one might expect investors to be hesitant about performing a like-kind exchange now, hoping for prices to go down in the future. But our panelists have found that modern investors have been paying close attention to the market and understand where value is to be found.

“Once the market opened back up, we saw some of the highest recorded 1031 passive investments in history in years ’21 and ’22. I would say any hesitancy now is due to lack of inventory, high interest rates, and not being able to find a suitable replacement property. We are still seeing investment property owners wanting to sell and do deals; they just now want a more planned approach when entering an exchange.”

“The pandemic stress-tested the real estate market, and certain property types failed while others thrived,” said Brower. “For instance, residential (multifamily) fared very well and investors are still seeing good value/opportunity within this space.”

Brower also pointed out that 1031 exchanges into certain types of investments, such as DSTs, provide additional value for investors “that are in their retirement years and want to relieve themselves of landlord responsibilities.” Exchanging into a Delaware Statutory Trust can provide passive income and diversification, qualities that are advantageous in today’s market.

“Given the challenges that many investors are facing due to the current market, diversity in real estate holdings has become the lifeline for maximizing their returns on their investment,” said Mabrie.

The panelists were in agreement that investors are more knowledgeable about the benefits of DSTs than they used to be, though there is still some education required, making events like the upcoming webinar a useful resource.

“There is a long way to go still,” said Brower. “Hopefully events like this will help bring more awareness to the DST industry. Once investors understand the benefits, it’s a very compelling option for 1031 tax-deferral.”

“I think DST investments are becoming more widely accepted among sophisticated investors, but there is still a significant learning curve,” added Amos. “1031 exchanges themselves are still not understood by the common investor or sometimes even their advisors. Even though it has been in the US tax code for over 100 years, it is still a specialized strategy that requires consistent education.”

The role of technology and what to look forward to at the webinar

The webinar, scheduled for February 21, will include discussion of a wide range of topics, including other replacement property strategies, best practices for Qualified Intermediaries, and what to look for in a 1031 service provider. The panelists will also be answering questions from attendees and taking the opportunity to learn from one another.

“I’m looking forward to discussing the real estate market,” said Amos. “How the brokers/economists are viewing the volatility in interest rates and strategies they are using to motivate their sellers.”

“I would say that the technology aspect of DST analysis is the most interesting aspect of 1031/DST for 2024,” said Brower, mentioning that Realized 1031 is employing technological tools that give investors greater ability to evaluate investments. “We’re performing advanced risk analysis on every DST to stress test the sponsor’s projections and arrive at a confidence score that can help an investor make an educated decision.”

“Technology is slowly making its way into the exchange industry, but there are still great strides to be had,” Amos added. “JTC has been and will continue to be a leader for innovation and best practices for the 1031 exchange industry. Our technology helps streamline the administrative processes and provides transparency throughout the investment lifecycle, which allows our clients to focus on finding the suitable replacement properties to successfully complete their exchanges.”

1031 in 2024: Strategies for Real Estate Investing
Wednesday, February 21st
2:00PM – 3:00PM ET
Hosted via Zoom


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