Diversified Portfolio 1031 Exchange

To support a multi-million dollar 1031 exchange Select Financial Capital partnered closely with an individual client. Discussions and research into properties for acquisition began in May of 2022.

Given the market environment and client’s investment goals, a target was set for an income yield of seven percent on the total investment. To benefit from diversification a real estate portfolio of multiple properties, types and geographies was targeted.

With properties of interest identified by the team, the client sold his existing property for over $11 million in October.

Select Financial Capital was exiting an existing syndication for investors around its Washington Square property in Miami and was able to secure a $5.5 million purchase position by the first week of November for this investor. This office property had performed well throughout the COVID downturn, and the team was able to negotiate his purchase position as part of its sale.

Almost half of the over $11m in funds was thereby invested in the first 45 days of the 180-day window to buy replacement properties in order to avoid capital gains taxes. The team now set to work to deploy the remaining funds.

The focus for the rest of the investment portfolio was the housing sector.

Working off the team’s target list, the next acquisition took place in December. A student housing property with 8 apartments and 3 bedrooms or 24 student housing units was purchased in Tallahassee Florida near Florida State University (FSU) for approximately $1.5 million.

In January the next target was acquired after negotiations and inspections in Greensborough North Carolina. The “Gaslight Apartments” property involved two parcels with four buildings and a total of sixteen housing units. This multifamily property was purchased for under $3 million.

Remaining funds of under $1 million were used to acquire a property of two duplexes and a total of four multifamily units in Fort Pierce Florida. This was also a January close.

As a result, the investor was able to successfully complete his purchases in less than four months and comfortably within the 180-day window to qualify for deferring capital gains taxes from his October sale.

The resulting property portfolio also met the goal to deliver an income yield of at least seven percent based on initial performance. Modeling performed by the team was also positive in terms of the outlook of meeting both future income and total return goals.

Working with the client, Select Financial Capital structured a diversified portfolio of commercial real estate investment properties. Property management was also handled for the client. Purchases were targeted in areas judged to have positive demographic and pricing trends. Properties were also judged to have strong income generation characteristics.

Purchase and management of this diversified portfolio of income properties took place comfortably within the 1031 exchange time window and according to plan.