Successful investors are continually learning and adapting to new technologies, commercial real estate trends, and investment strategies. Educated investors put their knowledge to work to preserve and grow capital. Our goal is to help all investors stay educated by providing straightforward, unbiased 1031 exchange information:

• Section 1031 Exchange Information and Real Estate Investing Articles
• 1031 Exchange Information Guide
• State Tax and Tax-Deferred Exchange Timeline Calculator
• Frequently Asked Questions and Answers

1031 tax-deferred exchanges allow investors to defer paying capital gains tax by reinvesting funds from property sales back into their real estate portfolios. Section 1031 Exchanges are a key tool educated investors use to benefit from existing tax regulations and preserve and grow investment capital in any economic cycle.

To get the most out of their on-going education, it’s important for investors to ask themselves three important questions about real estate investing:

1. What is my real estate investment timeline?
2. Have I Researched Available 1031 Exchange Information?
3. Does Passive Investing Make More Sense Than Doing Everything Myself?

A good way of thinking about a timeline for investing in real estate is to consider how important liquidity will be to you 5, 15, and even 30 years or more from now.

Historically, real estate has been an attractive way to build wealth over the long term. The trade-off is that capital invested in real estate is illiquid. Unlike shares of a publicly traded stock, real estate can’t be bought and sold at the push of a button on your computer keyboard.

Because real estate lacks liquidity investors should understand if and when they’ll need to turn their investments into cash and identify a real estate investment timeline accordingly.

Owning real estate gives a unique combination of three benefits that many other investments do not offer::

• First, investment real estate provides two cash flow streams: short-term through the monthly net income and long-term through the appreciation of the real property when it is sold.
• Second, tax law allows owners of real estate to reduce their annual cash income from the property by deducting a non-cash depreciation expense. This allows investors with positive net cash flow to reduce the amount of taxable income from their real estate investments.
• Third, Section 1031 tax deferred exchanges allow real estate investors who sell a like-kind property and replace it with another piece of real estate to defer paying the tax on any capital gains resulting from the exchange transaction. In our NASIS 1031 Exchange Guide we illustrate how one investor was able to grow the value of his real estate investment portfolio by nearly 70% by deferring the payment of capital gains tax and reinvesting the sales proceeds in like-kind real estate.

Most people begin investing in real estate in their spare time. They purchase a single-family home, rent it out to tenants, and manage the property themselves. That’s a common example of active real estate investing where the owner does everything.

However, when you’re hands-on it’s difficult to scale up and grow a real estate investment portfolio. Active real estate investing takes a lot of time and also limits the type and quality of property that can be invested in.

Passive real estate investing through an experienced real estate sponsor, like NAS Investment Solutions, can enable an investor to save time and expand the available type and quality of investment. By placing capital in a DST or TIC structured vehicle, investors have access to institutional-grade commercial real estate such as multifamily and student housing, and office, medical, warehouse, and industrial flex income property in both primary and high-yield secondary markets.

NAS Investment Solutions’ investment properties have been professionally underwritten and are managed by a team of professionals that have a wealth of experience in managing hundreds of investment properties across the country. DST and TIC real estate investments can offer an attractive 1031 opportunity, which can be precisely sized to meet the investor’s specific needs, and they can also be employed as part of an investor’s strategy to diversify his or her portfolio.

There are numerous reasons for investing in commercial real estate, including recurring cash flow streams, growth in property value through appreciation, and tax savings.

Almost all income-producing real estate provides these benefits. However, locating and acquiring high-quality real estate investments directly can be time consuming and expensive, with the best properties oftentimes out of reach.

That is why many sophisticated investors today are by-passing the older model of direct ownership and investing in fractional interest real estate instead.

Fractional interest is an ownership interest in a percentage of an asset.

In real estate investing, fractional interest ownership occurs when individual investors act as a group to purchase shares of Class A, investment-grade commercial real estate such as apartment buildings, industrial portfolios, and corporate campuses.

Traditionally, real estate investors have focused on owning 100% of a single property. This strategy may be useful for smaller, potentially riskier “mom-and-pop” types of investments but is not practical for larger properties.

Until recently, owning high-quality property leased to regional and national credit tenants was simply out of the reach of most investors due to the large capital requirements and expertise required.

Fractional Interest Real Estate Investing enables those with different investment strategies to own the same Class-A commercial real estate — Class-A, institutional grade property that may not otherwise be unattainable for the average investor.

Today, a growing number of commercial real estate investors are realizing the benefits that fractional interest real estate investments have to offer:

Lower Barrier to Entry

The capital required to invest in a fractional interest of real estate is much less than purchasing an entire property. In addition to requiring less funds, the transaction costs of a fractional investment are much lower, without the need of conducting property due diligence or obtaining financing.

Turnkey Pre-Packaged Investments

Institutional-grade real estate used for fractional investing is pre-vetted by the Sponsor or Trustee, with financing already in place. In most cases, property is pre-leased to a regional or national credit tenant on a net lease, which reduces investment risk and allows for a more predictable return of investment.

Diversify Investment Portfolios

Investing in fractional interest real estate makes it much easier to diversify investment portfolios and mitigate risk. Investors wishing to add income-producing commercial real estate to their portfolios have the option of placing capital in multiple investments, creating a more systematic diversification of capital compared to owning an entire property.

The two most common options for investing in fractional interest real estate are with Tenant-In-Common (TIC) ownership and by owning a beneficial interest in a Delaware Statutory Trust (DST).  See article DST Vs TIC Property Investing

Tenants-In-Common

A tenants-in-common investment is real estate that is directly co-owned with other investors. Unlike a DST, TIC investors must take an active part in making decisions about the property, although daily operations are often delegated to a third-party property manager:

• TIC agreements require that major property decisions such as financing or selling require the unanimous agreement of all owners.
• While TIC interests can be bought and sold, one of the biggest risks is that a new co-investor may become uncooperative by not agreeing to a major property improvement or by refusing to sell, even if all other owners agree to do so.
• TICs are generally structured to accept a lower number of investors, making it more difficult to diversify risk and invest in larger, more expensive Class A real estate.

Delaware Statutory Trust (DST)

NAS Investment Solutions specializes in DST structured properties.  A DST is a legal entity that directly owns the real property, while investors own a fractional or “beneficial interest” in the DST:

• Because DSTs have no limit to the number of investors, a fractional interest in a NASIS DST property start as low as $100,000, allowing the investor to own part of a larger, investment-grade property with a minimal amount of capital.
• DSTs are completely passive investments, with all major property decisions made by the trustee or asset manager of the DST.
• Beneficial interest structure of a DST shields investors from potential liability because the DST owns the real property, not the investor.
• Individual investors do not have to qualify for financing, because loans are made to the DST directly.
• A variety of properties may be held within the same DST, each with a different debt structure, providing investors with a deeper level of diversification from a single DST investment.

Since 2004, DSTs have been steadily increasing in popularity compared to TICs, in part because of the truly passive, hands-off nature of fractional interest DST real estate investments along with the ease of using a DST on the replacement side of a 1031 tax deferred exchange.

Although fractional interest real estate investments offer a wide range of benefits, they may not be the best choice for every real estate investor. Some of the key factors to consider before investing in fractional interest real estate include:

Liquidity

Because of their relative illiquidity, fractional investments best suited for real estate investors with a targeted holding period of at least 7 – 10 years.

Risk-Adjusted Returns

Fractional real estate ownership allows an investor to own part of a Class A property that they otherwise may not be able to attain on their own.

In exchange for the relatively lower risk of owning part of a high-quality property leased to a national or regional credit tenant, in a NNN lease, with predictable cash flows, overall returns may be lower than higher-risk Class B or more speculative investments.

Fractional investments, in a NAS Investment Solutions commercial real estate property, start at $100,000. This makes fractional ownership an attractive option for the replacement property in a 1031 exchange as well as for investors seeking to diversify an investment portfolio away from more volatile stocks and bonds, and the potentially higher risk of direct property ownership.

Sponsorship

Fractional interest real estate is a passive investment. Rather than requiring the investor to actively participate in property management and operations, the Sponsor is responsible for identifying and structuring pre-packaged investment opportunities, then overseeing the daily operations and achieving the targeted investment returns.  See article: The Importance of a Credible Property Investment Sponsor

Experienced executives at NAS Investment Solutions (NASIS) apply a disciplined approach to identifying and evaluating prospective commercial real estate acquisitions that are most likely to result in a long-term quality investment opportunity for our valued clients.

The company’s aim is to optimize operating performance and realize appreciation over time, while generating consistent, distributable cash flow for real estate investors.

Towards this end, NASIS seeks property acquisitions in economically diverse markets with identifiable opportunities in the employment sector. Above all, the company values location, and values investments in primary and secondary markets with strong inherent fundamentals driven by several factors, including barriers to entry, quality of life, proximity to amenities and a quality transportation infrastructure.

NASIS’ commercial real estate acquisitions criteria focuses on assets appropriate for a long-term hold for 1031 exchanges under a DST or TIC structure meeting the following criteria:

• One focus of NASIS’ real estate acquisitions is on conventional multifamily and student housing properties, with or without a mixed-use overlay, in primary and secondary markets throughout the United States.
• 65+ units (Smaller assets may be considered)
• Core Plus and Value Add
• Garden-style class A and B+ properties built in the 1990’s or later
  • Stabilized properties may also be purchased if justified by location and other market considerations
• Student Housing: Proximity to colleges and universities that strong projected enrollment growth in markets with favorable supply and demand characteristics

Other desired property classes for NASIS acquisitions are medical, office, light industrial and distribution/warehousing assets that feature a single credit tenant with long term lease commitments.

• Single tenants with investment grade credit
• Triple net lease with a minimum 15-year term remaining
• Strong location fundamental and above average demographics
• Quality A-asset of recent construction

The NASIS team values long term, loyal relationships with brokers and other professionals, and conducts business with a fast moving, no-nonsense approach to commercial real estate acquisitions.