What You Need to Know about 1031 Exchanges
NB Private Capital 1031 Solutions
- NBPC puts together 1031-eligible investments in real estate.
- Enable smaller investors to own institutional-grade properties.
- Properties can be turnkey, with loan, price, and strategy in place for potentially simpler 1031.
- Eliminates the hassles of tenants for landlords.
Keys to a Successful 1031
- Sales proceeds must go directly to accommodator.
- 45 days from close to identify replacements.
- 3 rules for identification: 3-property, 95%, 200%.
- 180-days from sale to close on replacement(s).
- Must maintain the same ownership entity.
- “Upleg” must have same sales price or higher.
Benefits to 1031 Exchange
- Defer capital gains taxes by reinvesting in real estate.
- Keep money potentially working on growing for you.
- Exit strategy for highly appreciated equity that may help eliminate the hassles of tenants.
1031 vs. Paying the Tax
- 32% to 37% is the average tax hit factoring in state/federal capital gains recapture taxes.
- The 1031 allows investors to keep that money working and growing for them if the properties are reinvested.
- By paying the tax, an investor should consider and calculate how long it would take a new investment to make up funds paid in taxes.
- Then factor in potential returns on the new 1031 property and factor how long new investments would take to catch up.
NBPC focuses on assets and the firm belief that they may be less correlated to the economy and to financial markets. The goal is to secure properties that have a track record of stable occupancy in what NBPC views as steady markets.
While every property offered is different, NBPC typically targets properties that are well-occupied and/or that have demonstrated stable occupancy and profitability. With today’s lower interest rates and cap rates still relatively high in certain markets, NBPC believes this may be an excellent time to pursue income-oriented assets.
NBPC employs a variety of strategies to potentially increase the value of a target property. In some cases, NB may use renovations or upgrades in an attempt to increase rental rates or NBPC may simply buy and hold a property we believe to be in a higher growth market. While NBPC targets appreciation in value as a high priority, appreciation tends to be speculative and market-driven, and therefore difficult to forecast or project.
Historically, most NBPC properties have allowed for pass-through depreciation to investors. In these cases, NBPC will provide Grantor Letters or a K-1 that help investors defer income taxes by depreciating hard assets on a preset schedule. It is our goal to continue this trend.
All real estate involves risk. Properties can be subject to market fluctuations, seasonal fluctuations, vacancy, higher-than-expected expenses, or other risks. In some cases, this may lead to a reduction in distribution levels or even foreclosure in extreme cases. Please consult the Private Placement Memorandum (PPM) of any NB Private Capital offering for a more complete list of potential risk factors.
We consider NBPRE as our financial PARTNER. NBPRE. has high integrity and honesty and is very knowledgeable about the student housing real estate market segment. We are delighted with the results and look forward to having a very, very long-term relationship with them.
— D.B., VIP investor*
[We’ve been] dealing with NBPRE and their staff for six years; the most important quality I really appreciate has been HONESTY.
— R.K., VIP investor*
I have invested in Brian's projects for over seven years. There have been several projects that went through full-cycle and the return has been beyond my expectation. It has been eight years since I met Brian and he has always been straightforward and honest.
— Y.S., VIP investor*
I was one of the original investors with Brian when he and his brother started their company 10 years ago. The student housing property was Patterson Place (now Duck Lofts) in Oregon. Since that time I have participated in more than 10 deals and two of those had been 1031 exchanges.
My main reason for investing in the company has been stable income plus some gain as well. Although I do diversify and deal with other companies, I like student housing. Plus, I have developed a very strong and valuable relationship with Brian. When I first met with Brian at one of his dinner seminars there were just three people attending. Since that time, there are more investors coming to the meetings. I think that says a lot about Brian and the way he and his company treat investors and the performance of the properties.
— S.Z., VIP Investor*
Pam and I have known Brian Nelson and his team for nine years. During this time, we have become investors, as well as friends. We have developed a deep trust in the integrity of these folks, both individually and as a professional team. All investment options have been transparently explained before and during the investment. While we make the final decision, we are treated as partners for whom the Nelson team works diligently to uphold their end of the bargain.
Our recommendation is unequivocal.
— K.O., VIP Investor*
1031 Risk Disclosure
- Risk – There is no guarantee that any strategy will be successful or achieve investment objectives.
- Potential for Property Value Loss – All real estate investments have the potential to lose value during their lives.
- Change of Tax Status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.
- Potential for Foreclosure – All financed real estate investments have potential for foreclosure.
- Illiquidity – 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions.
- Impact of Fees/Expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.