Finding a Qualified Intermediary for Your 1031 Exchange

When engaging in real estate investing, it is crucial to assemble a team of trusted professionals to navigate and execute your investment approach successfully. Among these professionals, finding a reliable Qualified Intermediary (QI) is paramount, especially when undertaking tax-deferred 1031 Exchanges. The QI plays a crucial role as the "Exchange escrow," holding the sales proceeds from the relinquished property until the identification of replacement properties and the subsequent purchase.

To ensure a smooth and orderly 1031 Exchange, evaluating potential Qualified Intermediaries requires a framework for assessment. Here are some criteria we use to evaluate QIs:

  1. Experience and Expertise: Look for QIs with extensive experience and a solid understanding of 1031 Exchanges. Consider their track record, industry reputation, and the number of successful exchanges they have facilitated.
  1. Compliance and Security: Verify that the QI adheres to all legal and regulatory requirements. Confirm their compliance with IRS guidelines and industry best practices. It is also essential to assess their financial stability and the measures they have in place to safeguard clients' funds.
  1. Service and Support: Evaluate the level of customer service and support provided by the QI. Are they responsive, knowledgeable, and proactive in assisting clients throughout the exchange process? Do they offer comprehensive guidance and resources?
  1. Reputation and References: Research the QI's reputation within the industry. Seek feedback from other real estate investors who have previously engaged their services. Online reviews and testimonials can provide valuable insights.
  1. Fee Structure: Compare the fee structures of different QIs and assess the value they provide in relation to the services offered. Consider both the upfront fees and any additional costs associated with the exchange process.

By carefully evaluating these criteria, you can make an informed decision when selecting a Qualified Intermediary for your 1031 Exchange. Collaborating with a reliable and competent QI will contribute to a seamless and successful exchange process, enhancing your overall investment experience.

Insurance and Fee Structure Considerations for Qualified Intermediaries in 1031 Exchanges

When evaluating Qualified Intermediaries (QIs) for 1031 Exchanges, it is essential to consider their insurance coverage and fee structure:

Insurance Coverage:

Man protecting a small house shaped object symbolizing the strategy to accumulate wealth through a 1031 exchange with proper insurance coverage
  1. Fidelity Bonds: Inquire about the QI's fidelity bonds, which provide coverage against potential fraud or misappropriation of funds by the intermediary.
  2. Errors and Omissions (E&O) Insurance: E&O insurance protects against errors, omissions, or negligence in the performance of the QI's duties. Confirm that the QI carries appropriate E&O insurance.
  3. Written Performance Guarantees: Some QIs may offer written performance guarantees, assuring clients of the QI's commitment to fulfilling their obligations. Evaluate the scope and terms of such guarantees.

It is reasonable to request proof of insurance coverage from the QI. They should be willing to provide documentation or information regarding their insurance policies and the specific situations they cover. This will give you confidence in their ability to handle potential risks and protect your interests.

Fee Structure:

Typically, straightforward 1031 Exchanges involve the exchange of one property for one or more properties, with defined and relatively low costs. Ensure that the QI clearly outlines their fee structure and provides an estimate of the associated costs for your particular Exchange.

For more complex exchanges, such as Improvement Exchanges or Reverse Exchanges, there may be variability in the fee structure due to the additional complexities involved. However, even in these cases, the fees should be defined and communicated in advance. It is essential to have a clear understanding of the fee structure and associated costs to make informed decisions regarding your Exchange.

By evaluating the QI's insurance coverage and fee structure, you can ensure that they have adequate protection against potential risks and that their fees are transparent and reasonable. These considerations contribute to selecting a reliable and trustworthy QI for your 1031 Exchange.

Internal Security Controls and Client-Centric Counsel Considerations for Qualified Intermediaries in 1031 Exchanges

Mature couple sitting with financial advisor discussing strategies to accumulate wealth through 1031 exchanges

When evaluating Qualified Intermediaries (QIs) for 1031 Exchanges, it is important to consider their internal security controls and their ability to provide client-centric counsel:

Internal Security Controls:

  1. Data Security: Inquire about the potential QI's policies and measures for data security. Assess their ability to protect sensitive client information, including financial and personal data.
  2. Cybersecurity: Evaluate the QI's cybersecurity protocols to ensure they have safeguards in place to prevent unauthorized access, data breaches, or cyber threats.
  3. Identity Verification: Understand the QI's procedures for verifying the identities of clients and counterparties involved in the exchange. This helps mitigate the risk of fraudulent activity and identity theft.

The industry trade association for QIs, the Federation of Exchange Accommodators (FEA), has established best practices that QIs should adhere to in order to protect client funds. Assess whether the potential QI aligns with these best practices and demonstrates a commitment to maintaining internal security controls.

Client-Centric Counsel:

  1. Legal Guidance: Quality QIs provide valuable counsel to clients regarding the legal aspects of the Exchange. While they may recommend clients consult with their own attorney for liability purposes, a reputable QI should have experienced attorneys available to address any questions or concerns the client may have during the Exchange process.
  2. Responsiveness: Evaluate the QI's willingness to provide timely and helpful guidance to clients. They should be proactive in addressing client inquiries and ensuring a clear understanding of the legal aspects of the Exchange.
  3. Finding a QI that prioritizes client-centric counsel demonstrates their commitment to serving their clients' best interests and ensuring a smooth and legally compliant Exchange process.

By considering a potential QI's internal security controls and client-centric counsel practices, you can select a trusted partner who prioritizes data security, provides reliable legal guidance, and fosters open communication with their clients throughout the 1031 Exchange.

In Conclusion: 

Tax-deferred 1031 exchanges offer significant opportunities for wealth preservation and asset repositioning. However, the key to success lies in assembling the right team of professionals. If you are interested in exploring the potential benefits of tax-deferred exchanges or would like to discuss our preferred qualified intermediaries, we are here to assist you. Feel free to reach out to us, and we'll be happy to provide further information and guidance.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication. 

1031 Risk Disclosure: 

Is it Possible to Execute a 1031 Exchange With Raw Land?

Completing a 1031 exchange can be a complicated journey, but the benefits can be significant for investors looking to defer capital gains taxes on their relinquished properties. There are many moving parts to the exchange process, as well as important deadlines that can’t be missed. For this reason, it is important that investors fully understand exchange rules and special stipulations prior to undertaking their exchanges. In this article, we will delve into the question of whether investors can use raw land as their replacement asset to complete 1031 exchanges.

When it comes to 1031 exchanges, the rules regarding what constitutes a like-kind asset are quite broad. In general, any real property held for investment purposes or for use in a trade or business can qualify for like-kind exchange treatment. This includes raw land, which is considered real property for purposes of a 1031 exchange. As long as the raw land is held for investment purposes or for use in a trade or business, it can be used as a replacement asset in a 1031 exchange.

Understanding the Concept of Like-Kind Property

To carry out a successful 1031 exchange, it is important for investors to replace their relinquished property with a like-kind asset that has similar characteristics and usage. The guidelines for what qualifies as a like-kind property for the purpose of a 1031 exchange were redefined by the Tax Cuts and Jobs Act of 2017.

Before this legislation, investors were allowed to exchange a broad range of personal and intangible assets such as machinery, equipment, vehicles, collectibles, and intellectual property, as long as they were used for business or trade purposes. However, since January 1, 2018, the rules have changed, and 1031 exchanges are now only applicable to real property.

When considering replacement properties for a 1031 exchange, it's important to note that the like-kind requirement is based on the nature and usage of the asset, not its quality or class. Real estate is considered generally like-kind to other real estate by the IRS, which means a wide range of properties can qualify as replacement assets.


For example, a single-family rental property can be exchanged for a duplex, a triplex can be swapped for a multifamily apartment complex, and a retail complex can be exchanged for an office building. However, it's important to keep in mind that the replacement property must have a purchase price equal to or greater than the relinquished asset, and an equal or greater amount of debt must also be swapped.

It's worth noting that 1031 exchanges can't be used to improve an investor's financial position or reduce leverage in investment real estate. The primary purpose of a 1031 exchange is to defer capital gains taxes on the sale of a property, so investors must carefully consider their options and adhere to strict guidelines to successfully complete an exchange.

Can Raw Land Qualify as Like-Kind Property in a 1031 Exchange?

When considering the definition of like-kind in a 1031 exchange, it's important to understand that the IRS looks at the nature and use of the asset, rather than its type, quality, or grade. As long as the asset is held as an investment, it can be considered like-kind for the purpose of a 1031 exchange.

This means that investors can exchange real property for unimproved property, including raw land. The fact that a parcel of real estate is either improved or unimproved doesn't affect its eligibility for a 1031 exchange. Raw land that an investor holds for future use or for future realization of appreciation is considered held for investment rather than for sale.

According to the American Bar Association, vacant or raw land is not available for rent, so it's considered an investment that's held for a potential increase in value. This makes raw land a suitable replacement asset for a variety of relinquished exchange properties.

However, it's important to note that the replacement property must have a purchase price equal to or greater than the relinquished property, and the investor must also swap an equal or greater amount of debt. Additionally, the investor cannot use a 1031 exchange to improve their financial position or reduce leverage in investment real estate.

In Conclusion:

Completing a 1031 exchange can be a complex process with many nuances that must be adhered to in order to ensure a successful exchange. This is particularly true when considering the exchange of investment properties for raw land. It is important for investors to consult with taxation professionals and experienced exchange accommodators before initiating the exchange process to help them potentially avoid mistakes that could invalidate their exchanges.

The guidance of a qualified exchange professional can be invaluable when navigating the exchange process. They can help investors understand the exchange rules and deadlines, identify potential replacement properties that meet like-kind requirements, and ensure that the exchange is structured in compliance with IRS regulations.

In addition, consulting with a taxation professional can help investors understand the potential tax implications of an exchange, including any capital gains taxes that may be deferred, and the effect that exchanging into raw land may have on their long-term investment strategy.

By working with experienced professionals, investors are in a better position to attempt to maximize the benefits of a 1031 exchange and potentially avoid costly errors that could jeopardize their investment goals. With proper planning and execution, exchanging investment properties for raw land has the potential to be a smart and profitable investment strategy.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Is a 1031 Exchange Available Through Banks?

A 1031 exchange is a tax-deferral strategy that allows real estate investors to defer paying capital gains tax on the appreciation of a property. It involves the sale of an appreciated property and the reinvestment of the proceeds into another "like-kind" property. By doing this, the investor can continue to grow their investment portfolio without the immediate burden of paying taxes on the appreciation.

The 1031 exchange provides investors with the opportunity to defer capital gains taxes by investing the proceeds from the sale of a property into a like-kind property. This can be a valuable strategy for investors looking to grow their portfolios without incurring immediate tax liabilities.

According to the IRS, a wide range of business properties can be considered for a 1031 exchange, including residential rentals, office spaces, retail assets, industrial properties, and even farmland. However, in order to fully defer the taxes, it is important to note that the replacement property must be of equal or greater value than the relinquished asset, including any debt that is associated with the property.

One of the key provisions of the 1031 exchange regulations is that the investor cannot have access to the proceeds from the sale of the property during the exchange period. This means that the transaction must be structured carefully, typically through the use of a Qualified Intermediary who will hold the funds and manage the escrow process.

The 1031 exchange regulations are also quite strict when it comes to timelines. The potential replacement properties must be identified within 45 days of the initial sale, and the entire transaction must be completed within 180 days. This requires careful planning and due diligence on the part of the investor to ensure that they meet all the requirements and deadlines set forth by the IRS.

An investor may repeatedly engage in 1031 exchanges, as long as they hold each property for a minimum of one year, continuously deferring capital gains tax accumulation. If the investor continues this pattern indefinitely, they have the potential to pass on the assets to their heirs without incurring any capital gains tax. Upon the grantor's death, the heirs would receive the property with a stepped-up basis, meaning that no capital gains taxes would be owed at that time.


Is My Bank Equipped to Offer Expert Advice on 1031 Exchanges?

Navigating a 1031 exchange can be a complex and challenging process, with strict timelines and stringent requirements for identifying replacement properties, as well as limitations on access to funds during the exchange period. The process may become even more complicated if the investor needs to improve the replacement property or has existing mortgage obligations.

Given the intricacies of a 1031 exchange, it's crucial to engage a professional expert who can guide you through the process. While some banks may offer this service, most large financial institutions do not have extensive experience in conducting 1031 exchanges. For example, Wells Fargo is one of the few major banks that offers this service. While working with your bank may be convenient, they may not be eligible to serve as your Qualified Intermediary, a critical component of the 1031 exchange process.

If you do choose to work with your bank, consider seeking the advice of a trusted financial advisor to ensure that the transaction is carried out successfully. Additionally, make sure to research the bank's qualifications and experience with 1031 exchanges to ensure that you're engaging a qualified professional.

Why a Bank Would be Disqualified.

The IRs does not specify specific qualifications for a Qualified Intermediary (QI) for a 1031 exchange. However, there is a list of parties that are excluded from serving as a QI, which includes the investor, their family members, employees, employers, and agents, such as an attorney, accountant, real estate broker, investment broker, or tax advisor.

Although banks are not specifically listed as excluded parties, if you have an account with the bank you wish to use as your QI, it may result in the IRS disallowing your exchange and imposing an unexpected capital gains tax. To avoid this, it is best to choose a bank that you have not conducted business with in the past two years for your 1031 exchange needs.

In conclusion, banks are not explicitly disqualified from serving as a Qualified Intermediary for a 1031 exchange, but it's important to understand the IRS restrictions regarding 1031 exchanges. While some banks do offer the service, it's crucial to engage an expert to assist with the complex process of a 1031 exchange. If the bank you use for other banking services is not experienced in 1031 exchanges, it's recommended to choose one that has more expertise in the matter.

Additionally, having an account with the bank could potentially disqualify the exchange according to the IRS, which is why choosing a bank with which you have not conducted business in the past two years is a safer option. Regardless of whether you choose a bank or a specialist, the ultimate goal is to ensure a successful and compliant 1031 exchange, deferring capital gains taxes, and striving to maximize investment gains.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

Reducing Capital Gains Tax: Selling a Home During Divorce

When selling the marital home as part of a divorce, it's important to minimize the capital gains tax that may be due. This becomes a concern if the gain on the sale exceeds $250,000. It's important to note that one spouse receiving the marital home in a divorce settlement is not a taxable event, it's the sale of the home that may be subject to capital gain taxes.

There are several strategies that divorcing couples can consider to minimize capital gains when the home is sold, such as:

Allocating the home to one spouse

In this scenario, the couple agrees to allocate the home to one spouse as part of their divorce settlement. The spouse who receives the home can then sell it after the divorce and take advantage of the primary residence capital gains tax exclusion.

The primary residence capital gains tax exclusion allows homeowners to exclude up to $250,000 of capital gains from the sale of a primary residence if they have lived in the home for at least two of the last five years. This exclusion applies to single taxpayers and married taxpayers filing separately. For married taxpayers filing jointly, the exclusion is up to $500,000.

It's important to note that the exclusion applies only to the primary residence, not to rental properties or vacation homes. Additionally, the exclusion can only be used once every two years.

When considering this strategy, it's important to keep in mind that the home should be allocated to the spouse who is more likely to qualify for the primary residence capital gains tax exclusion. This would typically be the spouse who has lived in the home for the majority of the past two years.

Renting the home out

Renting out the marital home after a divorce can be a strategy to minimize capital gains tax when the home is eventually sold. In this scenario, the couple agrees to rent out the home after the divorce and divide the rental income. By renting out the home, the couple can defer paying capital gains tax on the sale of the home until they eventually sell it.

When renting out the home, the couple will be subject to income tax on the rental income received, and any expenses related to the rental will be tax-deductible, such as mortgage interest, property taxes, and insurance. Additionally, any depreciation on the property can be taken as a deduction, which can help to offset the rental income.


When the couple eventually sells the home, they will be subject to capital gains tax on the difference between the sale price and the cost basis of the property, which is typically the purchase price plus any improvements made to the property. But if the home is held for more than a year, the couple will qualify for long-term capital gains tax rates, which are generally lower than short-term capital gains tax rates.

1031 exchange

A 1031 exchange, also known as a like-kind exchange, is a strategy that can be used to minimize capital gains tax when selling a marital home as part of a divorce. This strategy allows the couple to sell the home and use the proceeds to purchase another property, deferring the payment of capital gains tax on the sale of the home until the new property is sold.

In order to qualify for a 1031 exchange, the couple must use the proceeds from the sale of the home to purchase another "like-kind" property. This means that the new property must be used for investment or business purposes and must be of similar nature, character, or class as the property that was sold. The couple must also identify the new property within 45 days of the sale of the original property and complete the purchase within 180 days.

It's important to note that a 1031 exchange is a complex process, and the couple should work with a qualified intermediary to ensure that the exchange is completed correctly.

Selling the home before finalizing the divorce

If the divorce is not yet final, the couple can sell the home and divide the proceeds as part of their divorce settlement. By doing so, the couple can take advantage of the primary residence capital gains tax exclusion.

It's important to note that since 1997, you can no longer defer the capital gain on the sale of a marital home by buying another one of greater value. However, you can exclude from federal taxation up to $500,000 in home sale capital gains if you are a married couple. You can exclude up to $250,000 if you are single.

It's important to consult with a tax professional or attorney to understand how these strategies may affect your specific situation and to explore all the opportunities to minimize the capital gains tax on the sale of a home during a divorce. A tax professional, divorce mediator or Certified Divorce Financial Analyst can help you consider your options and make the best decision for your specific situation.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

5 Things to Look for in a Delaware Statutory Trust (DST) Broker

Your financial success can be made or broken when you set out to select the best Delaware Statutory Trust (DST) broker for your 1031 exchange. Investors frequently have to make complex evaluations, but it's crucial to know who to trust and where to put their money.

Finding the DST investments that make the most sense for you is essential, as is getting informed, experienced guidance about which DST(s) to select from someone who has your best interests in mind. Your broker should also be able to match you with investment options that are in line with your objectives and goals by taking the time to get to know you, as well as have a diverse selection of investment options accessible, a grasp of the management and track record of the DST sponsors.

Discover the warning signs and signals to look out for when selecting a DST broker to guide you through your 1031 exchange.

5 Essential DST Broker Characteristics And Important Warning Signs

When selecting a broker, being aware of what to look for and what to avoid might be helpful. As a result, you will be able to think through your investments with confidence knowing that you are receiving information that is specific to your needs. However, more importantly, you will feel more at ease knowing that you are working with a professional, experienced broker who is concerned about the success of your investments and who wants to build a long-term relationship with you.

1: Are they reputable and established?

Since the DST industry is smaller than you might imagine, when professionals mistreat their clients, word spreads quickly, especially if it is a regular occurrence. Consider a scenario in which a company or broker has a history of advising clients on substitute properties that are less ideal. That is a red flag that they probably don't have the interests of the investor at heart.

What to do: Verify that the broker you are considering has knowledge and expertise navigating market cycles. Inquire about their background in real estate and investments, including how long they've been doing it and what they did previously.

2: Do they disclose conflicts of interest and take steps to minimize them?

You need a consultant who will support you despite their competing interests. When deciding whether to engage with them and when analyzing the advice that they provide, anything that could affect their ability to defend your financial interests should be taken into account.

A stringent professional code of conduct is followed by the top DST brokers, so they won't have any improbable interests in the DSTs they recommend or don't. This indicates that neither the broker nor their business are owners of the DST investment. Of course, there will always be some degree of conflicts of interest, such as pay.

What to do: It's important to ask your broker directly if they or their business are associated with or owners of the DST investment opportunities they present to you. Ask them if there are any other potential conflicts, such as pay agreements.

3: Does your prospective DST broker learn about and comprehend your unique situation?

This is more significant than it first appears to be. Your broker should be entirely focused on getting to know you and developing an appropriate investment strategy that is specific to your goals and situation.

Make sure they also prioritize education and offer a balanced view of the dangers and opportunities.

What to do: Consider the suggestions that your broker gives. Anything that doesn't seem like it would be a good idea for you, challenge it. They should provide you options and explain why each one would be the best choice given your circumstances. It is likely that they have not done much investigation if they are unable to discuss the benefits and drawbacks of each investment and provide precise guidance on how to approach those decisions. This suggests that you might not be receiving a unique set of recommendations.

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4: What kind of analysis and due diligence team do they employ when evaluating offerings?

You count on your DST broker to be knowledgeable about each DST sponsor and each one's unique offering. The more thorough the investigation and due diligence, however, the more valuable the knowledge will be to investors as they choose which DST to invest in. Having enough pertinent knowledge is the foundation for making well-informed decisions.

Ask your broker if they have a team dedicated to analyzing DST offerings, and if so, how experienced they are. If they respond that they only rely on information from third parties or that their broker-dealer approves such offerings, that is probably insufficient. A staff within the broker should be solely responsible for examining the offerings. Inquire from the broker regarding the training and experience of their due diligence analysts.

5: Is your DST broker impartial and practical?

Although integrity and expertise can be discerned in a number of ways, promissory language is a surefire indicator. Never accept success or results guarantees from your broker. In reality, they ought to be upfront about prospects, risks, rewards, pros, and their limitations.

They will be aware of market volatility, have carefully researched the assets they are proposing to you, and never speculate in a way that ensures the performance of your investment in the future. Anyone who talks as though they possess a crystal ball is not being rational or impartial.

What to do: Be skeptical of concrete language about how much money you'll make from investing, and be prepared to walk away from overblown promises. Instead, a wise broker will examine many scenarios in order to determine the value of an investment. They will be able to express their evaluation of the risks and value based on your unique scenario, which is maybe most significant.

Conclusion: Choosing a Reliable Broker

A one-time trade of professional services should be avoided when looking for the ideal DST broker. Look for someone who views the connection as a partnership.

If you're thinking about selling an investment property, it's important to be aware of all your alternatives in order to get the most money possible. Call us right away. Our experts would be pleased to speak with you in further detail regarding the potential advantages of various investing strategies.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

DST Cash Investments as a Substitute for Stock Market Investing

For accredited investors participating in a 1031 exchange, Delaware Statutory Trusts are a worthwhile investment option to consider. However, some investors are unaware that DST cash investments are also a viable option.

Why think about making a DST investment?

DSTs may provide a number of advantages to investors engaging in a 1031 exchange, including the possibility to postpone the realization of capital gains from the sale of investment real estate and the avoidance of some of the risks involved in finding a replacement property quickly.

However, there are additional potential DST advantages that can benefit investors as a complement to either outright real estate ownership or stock market trading.

Potential Advantage #1: Professionally managed passive income

Have your money working for you - DSTs are professionally managed by asset managers and property managers who are responsible for ensuring that the tenants pay their rent on time and delivering the investor a check, often every month (assuming funds are available). You never engage with any of the tenants and have no management duties as an investor.

Potential benefit #2: Geographic and real estate sector diversification

It's wonderful to make an investment and see it pay off. What if it doesn't, though? Any investment has the potential to experience losses, whether it be in real estate, equities, futures, commodities, jack's magic beans, etc. However, the risk is spread out when one diversifies their portfolio by making investments in several different things.

Investors have access to a variety of DST real estate investments from different DST sponsors, including multifamily, storage space, commercial, and NNN leases. Additionally, you can invest in a specific type of DST, like multifamily, across a number of different geographic areas of the nation, increasing the likelihood that other locations won't experience a downturn in their local economies or, at the very least, lowering the likelihood that they will due to diversification.

Benefit #3: Supported by tangible assets

The fact that real estate is permanently anchored to the earth makes it one of the reasons why so many investors adore it. Real estate also has an inherent value, which means that it is fundamentally a hard asset with at least some minimal value, as opposed to a firm, whose shares can possibly lose all of its value should the latter go bankrupt. Uncovered natural disasters and foreclosure are always a possibility, but as was already mentioned, no investment is without risk.


Potential benefit #4: traditionally less volatile and associated with the stock market

The stock market can be unpredictable, as we've recently witnessed during the coronavirus pandemic. On other days, market volatility in the double digits have been the norm. The link between real estate and the stock market, however, has historically been smaller. Real estate is typically much less affected by market turbulence than the equity markets, but that doesn't mean it can't be volatile and experience a downturn like we did during the Great Recession of 2008–2009.

Potential benefit number five: access to institutional real estate.

Real estate is a popular way to possibly accumulate money and has several advantages as an asset type. Real estate, however, is not created equal. Real estate is similar to how there are blue-chip stocks and "junk" bonds. There are DSTs that allow investors to purchase "institutional-level" real estate, which is generally real estate that is thought to be of a certain grade and class such that huge institutions and significant investment funds would consider it. The majority of people would find it challenging to access these kinds of real estate investments on their own, but the DST structure enables them to indirectly hold a portion of these investments that they would not otherwise be able to.

Potential Perk #6: Low Minimum Investment for Accredited Investors (sometimes as Low as $25,000)

Sometimes as little as $25,000 can be invested directly in a DST as the minimal amount. This gives them access to DST real estate assets that would normally cost millions of dollars to acquire, finance, and operate on a fractional basis and is not a princely sum for the majority of accredited investors.

Potential benefit #7: DSTs allow investors to perform a 1031 exchange when the investment property is sold, according to current IRS regulations.

Investors who buy in equities, for instance, must pay capital gains taxes on any profits they make (note: Opportunity Zones may provide an option to defer those gains). However, under the current IRS code, investors have the choice to do a 1031 exchange into another property into which they own 100% or another partial DST, so delaying any capital gains, once a DST asset has been sold. Of fact, if President Biden's economic plan is approved, changes to the IRS rules, such as those under it, could alter how future earnings are treated.

Potential Advantage #8: Cash investors do not need personal finance clearance.

In contrast to buying a property directly and potentially needing to obtain financing from a lender, DSTs provide investors with non-recourse loans that are not dependent on the investor's capacity to obtain financing.

Who to Consider for a 1031 Exchange: BD vs. RIA

Investors might choose to work with a broker-dealer (BD) or registered investment advisor if they want to speak with a knowledgeable expert about their 1031 exchange investment alternatives (RIA). Although both BDs and RIAs can frequently provide comparable services, the breadth of their knowledge and costs can differ greatly. In this post, we clarify the distinction between a BD and an RIA in the hopes of assisting you in selecting the expert who is more suitable for your needs.

What's the distinction?

RIAs are people or businesses that primarily concentrate on providing general financial advice, managing client accounts, and carrying out stock trades on behalf of clients. RIAs often charge annual fees that are calculated as a percentage of the assets they manage for their clients' benefit.

BDs, on the other hand, primarily assist their clients in investment transactions. BDs typically charge a one-time fee rather than a recurring cost for each transaction they assist because their fees are largely commission-based.

A 1031 Exchange's Relevance

Work with a certified expert, such as a broker-dealer or a registered investment advisor, if you're an investor looking to sell your real estate and exchange it for a like-kind alternative investment.

Trading from a real estate asset into a Delaware Statutory Trust (or "DST") is one of the most prevalent types of a 1031 exchange in use today.

An investor can purchase an ownership interest in a DST, which is a legally recognized real estate investment trust. Beneficiaries of the trust are investors who own fractional ownership; they are regarded as passive investors. … Retail assets, multifamily properties, self-storage facilities, medical offices, and other types of commercial real estate are among the properties owned in DSTs that are deemed to be of "like-kind."


Investors can sell their real estate and purchase a suitable investment while postponing capital gains thanks to these one-time transactions.

Investors can also use the exceptional financing secured by a DST sponsor, receive possible management-free passive income, access institutional quality assets they might not otherwise be able to purchase, and limit their liability in the investment by trading into a DST.

Instead of comparing a DST to an equity acquisition, it is ideal to compare it to a real estate exchange because there is a big difference between the two in terms of how much an investor should spend in fees.

Preventing Possibly False Claims

Why is this significant when choosing between working with an RIA or a BD?

Many claims are now frequently made in an effort to attract investors for 1031 exchanges or people wishing to invest money in DSTs. Since their commissions are eliminated, several RIAs assert that working with them is less expensive than working with a BD. This assertion, however, disregards the fact that RIAs frequently charge continuous annual fees to their clients. Over time, this fee can end up costing you more. It's crucial to conduct research to determine the recurring fee and, if any, additional services you are receiving in exchange for that cost. It's important to remember that the recurring charge is often determined as a percentage of the assets' value. This implies that you will pay more if the item increases in value and less if it decreases in value. As a result, it is impossible to estimate how much the advising fee will actually cost over time.

Let's examine a case in point.

Consider a scenario in which an investor switches from a retail property to a DST, an investment that typically lasts for five to ten years before being sold and allowing the investor to make another transaction. Let's say the investor contributes $1 million to the DST. Let's compare the prices of a BD and an RIA now. If the BD charges a 6% commission on the investment, the commission on the transaction will be $60,000.

Contrarily, an RIA levies fees as a percentage of the assets under management (AUM), which in this case is $1 million. Let's now assume that the RIA fee is 1.5% of the AUM (assets under management). The investor would then pay the RIA $15,000 annually for the investment (assuming the asset value remains stable). The investor would spend between $75,000 and $150,000 for the exchange based on the typical holding time of a DST (five to 10 years)! Of course, there is a chance that the charge will be smaller if the DST sponsor leaves early or if you are given the chance to sell or swap early.

Compared to registered investment advisors, broker-dealers may be less expensive.

The aforementioned scenario only illustrates how dealing with a BD might be less expensive than working with an RIA by comparing the costs of the two types of advisors. In the example above, working with an RIA costs the investor 50% to 250% more than working with a BD. If an investor had millions to invest, just imagine.


Pay No Annual Fees for Passive Investments Such as DSTs and Other 1031 Exchange Investment Options

DSTs and other 1031 exchange investment choices are set up as management-free investments, so neither the investor nor the person acting on their behalf in the transaction is responsible for managing the investments. Sponsors are absolutely passive because they manage these alternative investments on behalf of their investors. When your DST investment is already being managed for you, why would you pay an RIA to "manage" it?

Recognizing Your Options

Investors should do their homework before making any investments to fully grasp the possibilities and costs involved. An investor should evaluate who has greater expertise in the investment and whose fees are more in line with the type of investment they are considering when deciding between an RIA and a BD. These inquiries might aid investors in safeguarding their capital and themselves in subsequent investments.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only, and should not be relied upon to make an investment decision. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

How Should I Invest My Wealth in 2022?

The present market offers financial backers a plenty of speculation valuable open doors across various ventures. While having different choices can assist with further developing a singular's venture methodology, they can likewise cause vulnerability, bringing up issues about which speculation suits the individual's monetary targets. So you may be wondering where do I invest my wealth in the current economy.

To help give guidance on which investment is ideal for you, we will frame the fundamental components of the present most wanted speculations and go over the upsides and downsides of every one.

For this article, we will isolate the data into two segments. To start with, we will take a gander at more conventional speculation choices, like putting resources into stocks or bonds. Then, we will audit elective speculations. Albeit less known among the present financial backers, elective choices offer potential advantages that numerous customary speculations need.

Customary Investment Options

By and large, financial backers have depended upon a 60/40 portfolio piece to assist them with accomplishing their long-term monetary dreams, for example, fabricating a savings for retirement, reimbursing a home loan early, or paying instructive costs for their youngsters. As indicated by this model, a financial backer's portfolio ought to comprise of about 60% stocks and 40 percent bonds. This model generally would in general convey financial backers stable development and pay to assist them with meeting their monetary objectives.

Stocks, or values, are protections that address partial possession in an enterprise. Financial backers purchase stocks and depend upon the organization's development to expand their abundance after some time. Also, stocks may offer financial backers profits - or installments to investors - for recurring, automated revenue. Then again, bonds are obligation protections presented by a company or government substance hoping to raise capital. Not at all like stocks, bonds don't give financial backers proprietorship freedoms, yet rather they address a credit.

The largest contrast among stocks and securities is the manner by which they produce benefit: stocks should appreciate in esteem and be sold later on the financial exchange, while most bonds pay fixed interest after some time.

While stocks offer financial backers the potential for more significant yields than securities, securities are by and large considered a safer venture. Therefore, numerous financial backers go to venture reserves, like common assets, trade exchanged reserves, or shut end assets, to broaden their portfolios while keeping a 60/40 arrangement. These venture subsidizes arrange capital from various financial backers, which is then, at that point, put into an arrangement of stocks and bonds. Venture subsidizes offer financial backers the possibility to moderate risk through a more adjusted portfolio.

A Change in the Portfolio Model

Because of progressing unpredictability in the stock and security market, rising costs for wares, and high valuations, the customary 60/40 portfolio model is done serving financial backers in a similar way it once did. Therefore, numerous monetary specialists are presently suggesting that financial backers broaden their portfolios with 40% elective ventures to help possibly advance their monetary position.


Elective Investments

While various kinds of elective ventures exist, we will zero in on elective land speculations because of the advantages they might perhaps offer financial backers in the present market.

Why Invest in land?

Land has for quite some time been one of the most sought-after open doors for financial backers. As a restricted ware, land has generally managed the cost of financial backers the potential for long haul security, fantastic returns, recurring, automated revenue, charge benefits, and a fence against expansion. Notwithstanding, land speculations additionally accompany specific drawbacks. Beginning in land effective money management ordinarily requires a broad measure of capital and solid financials for the individuals who are utilizing obligation.

Besides, land by and large requires dynamic support - financial backers are expected to deal with their resources for guarantee ideal execution. In this manner, elective interests in land have begun filling in prominence among the venture local area. While they can frequently offer comparable benefits to land money management, they convey a uninvolved open door, meaning they have zero administration obligation. The following are a couple choices for financial backers looking for elective land speculations.

Real Estate Investment Trusts

A real estate investment trust (REIT) is an organization that possesses and normally works pay creating land or related resources. REITs consolidate all resource types, including multi-family, retail, senior living, self-capacity, cordiality, understudy lodging, office, and modern properties, to give some examples. Dissimilar to other land ventures, REITs by and large buy or foster land for a drawn out hold.

Financial backers depend on a REIT's comprehension expert might interpret the housing business sector to broaden and balance out their portfolios. Numerous REITs are public, implying that all financial backers, including unaccredited financial backers with restricted capital, can put resources into them.

While public REITs convey many benefits related with customary land effective financial planning - like pay potential, broadening, and conceivable expansion security - they additionally accompany some particular inconveniences. For instance, REITs frequently experience slow development. Since REITs should pay out at least 90% of their benefits in profits, new acquisitions and improvements are restricted. To decide the strength of a venture, potential financial backers ought to lead a reasonable level of investment - with the help of a specialist on the REIT before buying shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a lawfully perceived land speculation trust where financial backers buy a possession interest, or partial proprietorship, in a land resource or land portfolio.

DSTs are usually depended upon by 1031 trade purchasers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

As well as giving financial backers recurring, automated revenue potential through an administration free venture, DSTs empower financial backers to put resources into institutional quality resources for which they wouldn't in any case have access. These resources might have the option to convey more significant yields and longer-term strength.

Moreover, the obligation designs of DSTs are appealing to numerous financial backers. Individuals who put resources into DSTs have restricted obligation equivalent to their ventures; nonetheless, they can exploit the frequently alluring funding gotten by the support organizations. Sadly, just licensed financial backers can put resources into DSTs.

Opportunity Zones

Opportunity zones (OZs), characterized by the IRS, are "a financial advancement device that permits individuals to put resources into upset regions in the United States. This incentive’s intention is to prod financial development and work creation in low-pay networks while giving tax breaks to financial backers." OZs were presented. under the Tax Cuts and Jobs Act of 2017, and financial backers keen on putting resources into an OZ should do as such through a qualified opportunity fund (QOF).

QOFs can be an eminent choice for financial backers because of their tax breaks, which rely upon the period of time a financial backer holds a QOF venture. We have recently made sense of these advantages, which we allude to as OZ triple-layer charge motivators. Here is a depiction of the tax cuts a QOF offers a financial backer:

● Deferral: Those who rollover their capital increases into a QOF can concede capital earn respect from the first speculation until December 31, 2026.

● Decrease: how much capital increase perceived from the first speculation is diminished by 10

percent in the wake of accomplishing a five-year holding period, as long as that five-year holding period is accomplished by December 31, 2026.

● Avoidance: Long-term financial backers are qualified to pay no expense on the enthusiasm for their QOF venture upon attitude of that speculation, no matter what the benefit size, assuming the resources held in that QOF are held for no less than 10 years.

While opportunity zones are viewed as an unsafe speculation, provided their motivation, they might possibly convey financial backers better yields when contrasted with other elective land venture choices.


Interval Funds

An extra elective venture choice worth focusing on are interval funds. These assets are not restricted to land yet rather can be utilized to put resources into numerous protections, including land. Comparable to recently referenced reserves, these arrange investor money to put resources into various protections. Be that as it may, they offer a lower level of liquidity. Rather than having the option to exchange shares everyday, financial backers are normally restricted to selling their portions at expressed spans (i.e., quarterly, semi-every year, or yearly). The advantage of stretch assets is the adaptability they offer the assets - they permit the asset to execute longer-term procedures, making the potential for a more steady venture.

Accordingly, interval funds will generally convey better yields and a more broadened an open door. Presently, where do I put away my cash today? While the above data offers a depiction into the upsides and downsides of different speculation choices, you ought to think about extra perspectives. As opposed to promptly attempting to distinguish which choice is ideal for your purposes, the critical focal point here is to comprehend that the present market offers a variety of venture choices that were already obscure to quite a large number. Financial backers can broaden past stocks and bonds, which might potentially give them more significant yields while trying to relieve risk. To foster a venture portfolio that meets your monetary objectives, we encourage you to talk with one of our monetary experts.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: