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LOS ANGELES, Nov. 15, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently helped a sophisticated high-net-worth investor strategically identify viable Qualified Opportunity Zone (QOZ) projects to help him achieve greater diversification from a heavy stock market concentration and take advantage of the unique tax benefits associated with the law outlined by the 115th Congress in Public Law No: 115-97 on December 22, 2017.

According to Betty Friant, Senior Vice President with Kay Properties & Investments, expert tax advantaged real estate advisor and highly experienced QOZ investment advisor, the client knew a little about QOZs, but relied on Kay Properties & Investments and their own CPA and attorney to help create a complete business plan that included both short-and long-term objectives.

"This particular investor did really well in the stock market but wanted to add diversification to his overall portfolio. Kay Properties helped him identify different Qualified Opportunity Zone projects that contained multiple properties distributed across many different geographic regions, multiple asset types, and with a diverse tenant mix," said Friant.

According to the Internal Revenue Service, Qualified Opportunity Zones were created by the United States Congress as part of the Tax Cuts and Jobs Act of 2017. The purpose of the program was to encourage long-term investments in low-income communities across the United States. The United States Department of Treasury estimates there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. If the investor invests gains from a previous investment before December 31, 2021, and then holds their interest in the QOZ fund for at least five years, the tax they owe in December 2026 may be reduced by approximately 10% by virtue of the stepped-up basis. Furthermore, if the investor holds the investment for 10 years, there is potentially no tax on any appreciation on reinvested gains that they made. 

"So obviously, one of the keys to this investment strategy for this investor was to make sure the QOZ investment was initiated before December 31, 2021, after which he would not be able to receive a 10% step-up basis on his original investment," said Friant. 

According to Friant, Qualified Opportunity Zones may be able to provide investors a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of a business, stocks, bonds, cryptocurrency, jewelry, art or real estate into a Qualified Opportunity Zone, investors can reap an array of tax benefits — assuming they make the investment within six months of realizing their capital gain.

"But the thing about QOZs is that their designation is based on data from the 2010 census, and QOZ's didn't become law until 2017. So here we are in 2021 and some of these previously identified opportunity zones are now on the edge of some of the hottest real estate in the United States," said Friant. 

1031 exchange investor couple turns to Kay Properties to help eliminate active management responsibilities and to achieve potential recurring monthly income

(Torrance, CA) Kay Properties & Investments was recently contacted by a real estate investor couple who needed help completing a 1031 exchange into Delaware Statutory Trust (DST) investments across multiple property types and geographic locations. While the couple were experienced investors with decades of real estate experience, they contacted Kay Properties in order to access the firm’s full DST marketplace of all-cash/debt-free real estate investment options, and the firm’s nationally recognized expertise in DST investments.

“This was more than a successful DST 1031 exchange transaction. It represented a growing trend we’ve been seeing more and more within our investment community. There is a real need for our investors to have solutions for their investment real estate needs once the time comes for them to step away from active management. I was incredibly proud that our Kay Properties team of DST experts was able to help these two impressive and experienced investors achieve their objectives,” said Dwight Kay, Founder and CEO of Kay Properties and Investments.

According to Kay Properties Vice President and DST 1031 investment expert, Alex Madden, when the couple reached out to Kay Properties, they were in a conundrum, and needed a firm who could help advise them on Delaware Statutory Trusts 1031 exchanges. They were looking for someone with the patience and resources to educate them on specific strategies while always enlightening them on both the potential risks and benefits of DST investments.

“They had worked hard their entire lives and had acquired a portfolio of eight well-located condominiums that had appreciated phenomenally over the years. It was a big point of pride for them that they were able to pay off the mortgages on all their properties,” said Madden.

Because the couple were first-time DST investors, Madden explained that he spent a significant amount of time in the beginning educating them on how to use DST investments as a 1031 exchange vehicle, and how the unique structure of the DST could potentially help them achieve their unique set of financial and nonfinancial goals. We also spent considerable time and energy discussing the potential risks of DST investments and going through these risk factors in detail.

“They had been active and hands-on real estate investors for so long, so we understood there was going to be a learning curve. But they regularly attended and participated in our conference calls and our webinars, along with reading just about everything we had including the detailed offering memorandums business plans and risk factors, so that when they consulted with their CPA, they were prepared and had all of the right questions to ask. The main thing they wanted was to be completely hands off from active management as well as to defer associated taxes utilizing the 1031 exchange,” said Madden.

Madden explained that while they had considered some triple net lease (NNN) properties at first, they also felt it was too late in their life to learn a whole new business model. They also felt that after making all the sacrifices over the years to become debt-free on their condominiums, it didn’t make sense to take the risk of investing in a leveraged DST. Kay Properties has access to many leveraged DSTs for those needing to replace debt in a 1031 exchange as well as many debt-free DSTs for those not needing to replace debt nor wanting to take on the risk of leverage in their replacement properties.

So, with the help of Kay Properties team of DST experts, the couple invested in a multifamily apartment DST, a corporate headquarters DST, a dialysis medical building DST, and a self-storage DST. Each property was in a different geographical location, and each tenant represented a different industry.

“Everything went well, and in the end, they were very pleased and appreciative of the Kay Properties business model. We spent the necessary time with them to understand their objectives, goals and risk tolerances and worked tirelessly with them and their CPA to build a 1031 exchange DST solution that would potentially achieve those objectives,” said Madden.

As we emerge, fortunately, from the pandemic, including the recent Delta variant surge, it’s a good time to assess real estate investment opportunities if you’re looking to reinvest proceeds in a 1031 exchange transaction or seeking to invest cash as part of a diversified financial portfolio strategy.

Here’s how you could build a post-pandemic real estate investment portfolio, recognizing some of the new realities the pandemic has exposed.

Let’s say you, your family or your family office is looking to invest $1 million to $100 million, plus or minus. A prudent diversification strategy suggests you should allocate capital across different property types, asset classes and geographies. (Of course, diversification does not guarantee profits or protect against losses, past performance never guarantees future results, and income and appreciation are never assured with any investments, but real estate has proven to be a winning part of many investors’ alternative asset portfolios.)

Diversifying across property types and locations

A diversified investment approach right now could include a mix of industrial, multifamily and retail properties.

The pandemic has been particularly kind to industrial properties, namely those occupied by logistics and shipping companies, and properties that serve as distribution hubs for manufacturers, wholesalers and retailers. These assets, as a class, have performed especially well the past two years as the trend toward e-commerce accelerated drastically during the pandemic—a period in which many people who previously had resisted home delivery of goods and services finally embraced the concept that was already growing year-over-year.

Increased demand for delivery is expected to continue to have positive long-term implications for industrial real estate, including last-mile distribution and logistics, for years to come. So industrial/distribution and logistics properties should be seriously considered as part of a real estate investment portfolio whether considering a 1031 exchange or as a direct investment.

Multifamily properties have also performed relatively well during the pandemic, thanks to help for tenants in the form of direct aid and rental payment assistance, as well as forbearance from landlords. Already, the multifamily market is experiencing higher rents as the pandemic recedes and the return to work continues, according to Yardi Matrix, and as units turn over and rents reset at new levels.

Retail properties have been a mixed bag during the pandemic, with enclosed malls performing the worst, shopping centers with big-box tenants somewhere in the middle, and grocery-anchored neighborhood shopping centers faring the best. Net-leased assets, where the tenants pay some or all of the property expenses including taxes and insurance in addition to rent, generally have outperformed the market as a whole. Net-leased assets include freestanding drugstores, health services operations such as dialysis centers, and fast-food restaurants with drive-throughs. These types of assets should be seriously considered for inclusion in a diverse real estate investment portfolio when seeking 1031 exchange investments and direct cash investments into real estate.

Using DSTs as a vehicle to hold diverse investments

An effective way to hold post-pandemic real estate investments could be Delaware Statutory Trusts. DSTs are a vehicle for direct investment or for a turnkey solution as part of a 1031 exchange. Investors are often deploying as little as $25,000 into DSTs and as much as $50,000,000-plus, so they can work for a wide range of accredited investors (typically defined as having a net worth of over $1,000,000).

With DSTs, investors can own an interest in diverse real estate assets without the hassles and headaches of sole ownership and management, which entails the burdens of being a landlord, i.e., tenants, toilets and trash.

DSTs can hold title to all manner of investment real estate. The investment sponsor is responsible for day-to-day asset management, with investors participating passively in the form of potential monthly distributions (positive cash flow) by direct deposit into their checking or savings accounts. There also is the potential to generate appreciation just like with sole ownership, although it is important to note that as with all real estate investments, positive cash flow and appreciation are never guaranteed and could be lower than anticipated.

There are also the other tax advantages of direct real estate investment, including depreciation deductions, to help shelter rental income. Plus, DSTs are 1031-exchange eligible, unlike many other real estate investment structures, which means that any capital gains on the sale of assets can be deferred if the proceeds are reinvested into other income or investment properties.

You could build a diverse portfolio of real estate investments across property types and geographies by investing in multiple DSTs. Using the $1 million hypothetical investment amount noted above, a portfolio could include:

• Five $100,000 investments in different multifamily apartment properties in various Sunbelt states;
• One $150,000 investment and one $100,000 in different net-leased medical facilities in Texas;
• One $250,000 investment in an industrial/distribution facility in the Midwest.

The bottom line

For all the challenges presented by the pandemic, the crisis is illuminating potential investment opportunities that could have stronger prospects long term. Certainly, the pandemic has demonstrated the resilience of investment real estate as an asset class, with lessons for building a real estate portfolio that can possibly endure market shifts and swings.

Because real estate is so integral to the ways we live, work and play, income and investment properties are likely to remain attractive for many investors interested in diversification and the pursuit of income and appreciation well into the future. The issue, as always, is identifying the opportunities that are best suited to meet your personal financial and tax goals and objectives.

Dwight Kay is founder and CEO of Kay Properties and Investments, LLC, which operates a DST and 1031 exchange property investment marketplace online.

 

It’s a great feeling when you sell some stock, a piece of real estate or the business you’ve poured your life into for a nice profit that puts a small fortune into your bank account. But then comes the tax bill to take a little bit of the bloom off that rose. It’s downright painful to hand your hard-earned money over to the government, even at the reduced capital gains rate.

The good news is, every now and then, the feds are willing to cut you a break. And there’s one tax break a surprising number of investors have never even heard of, let alone taken advantage of, which is Qualified Opportunity Zones (QOZs).

What are qualified opportunity zones? 

QOZs are relatively new and were created by Congress within the Tax Cuts and Jobs Act of 2017. The purpose of this new program was to encourage long-term investments in low-income communities across the U.S. According to Indiana University’s Kelly School of Business, there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. The bottom line is that QOZs are a part of a social program with the intent of redeveloping impoverished districts throughout the country by driving private capital to underserved communities and Americans by offering tax incentives to investors.

Doing Well By Doing Good

QOZs can provide qualified investors with a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of stocks, cryptocurrency, bonds, jewelry, art or real estate into a QOZ, accredited investors can reap an array of tax benefits, assuming they make the investment within six months of realizing their capital gain.

It’s critical to note that, unlike a 1031 real estate exchange, you’re reinvesting your profit only — not your basis.

Three Examples Of How QOZs Work

Let’s take a look at the three ways you can save:

• Tax Saving Opportunity #1: Investors who invest capital gains income can defer their reinvested capital gains taxes until the end of 2026. In other words, you won’t owe the IRS a penny on that money until April 2027.

• Tax Saving Opportunity #2 (expires on December 31, 2021): If you invest your profits before December 31, 2021, you get the added benefit of a 10% step up on the basis of your original investment, which only adds to your tax savings.

• Tax Saving Opportunity #3: There is a much bigger benefit if you hold your investment for at least 10 years and a day. If an investor held their QOZ investment for 10 years, that taxpayer wouldn’t have to pay even a penny in taxes on the profits they made — no matter how big they are.

As you can see, the biggest takeaway of QOZ funds is that after an investor holds their position in the investment for 10 years, there is no tax on the asset’s appreciation. That’s zero. So, if an asset appreciates 20 or 30%, that could translate to a significant return for the investor.

Tax savings aren’t enough.

As great as all of this sounds, it’s important to carefully evaluate a project’s true investment potential before considering the tax benefits, especially since you’re required to keep your money locked up for at least 10 years in order to enjoy the full tax benefit. Like any real estate investment, there is no guarantee for cash flow, distributions or appreciation, and this can result in the full loss of invested principal.

As an investor with 20 plus years of experience in commercial real estate and investment sales who regularly advises high-net-worth investors, I try to always emphasize the importance of understanding the investment first and then the tax benefits. It’s better to look at the tax benefits as “gravy,” rather than as a reason to make an investment you otherwise wouldn’t even consider.

The good news is that plenty of development projects are currently available. Plus, because many of these locations were determined to be economically challenged areas based on 2010 Census data and the Tax Cuts and Jobs Act was passed in 2017, many of these properties are now located in some of the hipster neighborhoods across the country.

Finding Good Qualified Opportunity Zone Projects

Regardless of whether an investor decides to move forward with a QOZ fund investment or not, there are certain questions that each should ask their advisor before moving forward with this type of investment. These questions include:

• Where are the real estate properties located? Make sure you understand the underlying market fundamentals of the area. One thing, in particular, that I advise my clients do is to try and find a location where long-term demand is inherent in the market.

• What is the makeup of the fund in terms of diversified assets? One of the ways to help reduce risk is to choose a property that is diverse. For example, a portfolio with only one large project could be considerably more vulnerable to other competitors with the same type of building. Try to find a portfolio that has a balance of multifamily, retail and distribution.

• Who is sponsoring the investment properties, and what kind of reputation do they have? Just like with any profession, there are quality QOZ advisors with years of experience and there are advisors who have very little experience. Avoid financial planners and other generalists. Also, consider finding a firm that is very particular about the type of properties it offers investors. Ask specifically what type of real estate assets they have previously invested in, and try to get some historic performance data.

It’s important to go into any investment with eyes wide open. Walk away from any firm that tells you this investment is “guaranteed” to make money, as there are always risks associated with investing in real estate securities.

 

LOS ANGELES, Nov. 03, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently announced the successful completion of a complicated Delaware Statutory Trust (DST) 1031 exchange for $23 million across multiple asset classes and geographic locations. The transaction involved helping two partners identify viable exchange properties prior to them selling a building that was the center of the business operation. The partnership relied heavily on Kay Properties’ unique fully-integrated DST real estate investment platform that provides clients information on the potential benefits and risks of DST 1031 investments, guidance in navigating the nuances and deadlines of DST 1031 exchanges, and a broad DST property menu.

“This was a very unique situation in that the two partners wanted to relinquish the industrial building where their business operated, and transition into a passive real estate ownership position while keeping the partnership intact. Our role was strictly limited to advising them on their DST 1031 business plan, and assisting them in identifying viable 1031 exchange options,” said Chay Lapin, President of Kay Properties & Investments, and recognized expert in DST 1031 exchanges.

DST stands for Delaware Statutory Trust, which is an entity created to hold title to one or more income-producing commercial properties including apartments, medical buildings, net-lease retail, industrial facilities and more. Individual investors in a DST hold an investment position in single or multiple properties. Each investor owns a beneficial interest in the trust that owns the underlying real estate. The DST structure allows investors to defer capital gains taxes via a 1031 exchange, qualifying as “like-kind” property under IRC Revenue Ruling 2004-86. DST properties also provide access to institutional quality real estate assets, with a passive ownership position that entitles the investor to his or her pro-rata share of potential income and appreciation in the assets of the DSTs.

According to Orrin Barrow, Vice President with Kay Properties who was also instrumental in advising and facilitating the 1031 exchange, the key to making this transaction work was Kay Properties’ ability to leverage its deep industry contacts to identify custom DSTs only available to Kay clients that fit the investors’ unique needs and overall investment strategy.

“This deal highlights something Kay Properties does really well, and that is utilizing our relationships in the real estate industry to find custom opportunities that are only available through the Kay Properties platform, and then successfully securing the equity reservation. We were able to help them close on a quarter of their actual exchange shortly after their identification period so they had a leg up in securing exactly the type of exchange property they wanted. I don’t think there is another representative firm out there that has that type of leverage and that type of access to both open market options and custom DSTs,” said Barrow.

In addition, the Kay Properties team worked closely with the partners to educate them on the nuances and timelines associated with DST 1031 exchanges, along with the potential risks of the DST 1031 structure.

“Kay Properties is a truly specialized firm that deals with nothing but DST 1031 investment and real estate strategies. We have participated in more than $21 billion of DST investments, and thus have the experience needed to properly guide investors during this important life decision of a large 1031 exchange into DST investments. The two partners knew a little about DSTs, but they certainly did not have enough knowledge to facilitate it themselves and navigate the market alone. They were really appreciative of all the time we took to carefully explain the entire DST process and associated risks, and helped them navigate the entire process from start to finish,” said Dwight Kay, Founder and CEO of Kay Properties & Investments.

The result was the partners were able to transition into a passive ownership position, gain diversification across multiple geographic regions and asset types, and recognize the potential for a regular monthly cash flow.

“It was one of the most unique deals I have ever been involved with and our ability to provide access to all-cash/debt-free DSTs and leveraged DST properties was instrumental in accomplishing everything these investors wanted to accomplish,” commented Barrow.

High-net-worth investor decides to relinquish a portion of his rental property portfolio in a succession of sales before entering multiple DST 1031 exchanges to help achieve diversification, non-active management and potential monthly income

LOS ANGELES, Oct. 26, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments successfully helped a high-net-worth client complete 15 Delaware Statutory Trust (DST) investments following the sale of five multifamily properties within a short period of time.

“This particular client leveraged the full potential of Kay Properties’ unique real estate platform that combines extensive client education, a robust menu of diversified DST investment options from multiple Delaware Statutory Trust sponsor companies, and deep market contacts across the country. After conducting literally years of research on the subject, he decided that DST investments provide an investment strategy that fit his own goals and objectives better than active ownership/management of rental properties, as well as that Kay Properties was the right team and platform to help him invest in DST 1031 properties,” said Dwight Kay, Founder and CEO of Kay Properties.

Kay also explained that this type of transaction illustrates the growing popularity of DST 1031 exchanges among real estate investors.

“As DST 1031 exchange experts, Kay Properties & Investments representatives speak with hundreds of accredited investors each week who want to know more about DST investment opportunities,” said Kay.

After completing his first DST 1031 exchange several years ago, the client recognized the level of expertise Kay Properties provided throughout the entire exchange process, and how readily available the entire Kay Properties team was to answer questions or provide advice.

“He first started to learn about DST investments through extensive conversations with the Kay Properties team and with the resources available on the www.kpi1031.com platform. Then, he started to conduct his own research and really got comfortable with how DST 1031 exchanges work. Over the months he asked many questions, and we were always there for him with answers and guidance. Plus, he really got to the point several years ago where he didn’t want to be a landlord anymore. He was proud of himself for having built such a portfolio during his younger years, but he just reached a point in his life where he wanted to start selling some of his investment properties,” said Jason Salmon, Senior Vice President and Managing Director of Real Estate Analytics with Kay Properties & Investments.

Because the investor had already completed at least one DST 1031 exchange and was comfortable with the investment vehicle, Salmon explained he now wanted to slowly liquidate his real estate portfolio. The investor, along with his CPA and attorneys, worked closely with Salmon and the Kay Properties team of DST experts to create a very detailed plan that included anticipated closing times on the relinquished properties, timelines for finding and vetting replacement properties that fit within the investor's very specific parameters, and creating a workflow that coordinated all the necessary paperwork and signatures so that everything was organized and every closing went smoothly.

“Some sales overlapped with each other, and so it became a cadence -- one after the other, after the other, after the other, after the other. We are in constant contact and we really immerse ourselves into finding just the right DST property or properties that fit perfectly into his 1031 investment model,” said Salmon.

The investor, Salmon explained, invested in industrial distribution, net lease, self-storage, medical, and multifamily DST investments that were for sale across multiple geographic regions.

“The gentleman is very, very comfortable with DSTs at this point, and is very pleased with the diversification, passive ownership, and potential monthly income stream that he has been able to accomplish. I believe his intention is to not buy any more rental real estate, and continue to move into DST investments on a systematic basis,” said Salmon.