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Dear Investors,

Avesta is pleased to share our Quarterly Newsletter on 1031 Exchanges with you. Every quarter we will be discussing a scenario whereby a 1031 exchange may be a useful and accretive strategy for an investor. Avesta is thrilled to continue to advance our offerings to provide the best strategies and service to our partners while building communities where residents can live abundantly.

We currently have several investment opportunities in Florida and Texas for which we are accepting 1031 exchanges.

Case Study: Selling Your Business – a Valuable Time to Consider a 1031 Exchange

Selling one’s business can generate a host of feelings for the owner including pride, excitement, and even sadness, all while creating substantial liquidity and potentially a large tax liability. However, it is possible to tax-efficiently create liquidity, while still deferring a portion of the sales proceeds in a manner that keeps them working for the owner at pre-tax levels. Avesta can help investors with the divestiture of the real estate portion of their business.

Often, a business sells at a price that is based on a multiple of earnings or revenue, yet the business often includes assets as well. If real estate is owned by the business, then the value of that real estate can be tax efficiently exchanged via a 1031 exchange into another property.

Example:

John is an Avesta client that is selling a car dealership that he has owned for 30 years; he bought the land for $1 million. The dealership has performed well, is very profitable, and John has received an offer to sell the business for $20 million.

John decides that he wants to sell, but realizes that this would be a sizable taxable event. John, with the help of his accountant, can partition the portion of the $20 million sale that is allocated to the real estate (including buildings and improvements), and tax efficiently transfer that real estate allocation to one or more cash flowing apartment communities via a 1031 exchange. To determine the value of the real estate, John decides to get a 3 rd party appraisal for the property, which values the real estate at $9 million. John ultimately sells his business for $20 million and his accountant sub sequentially allocates $9 million to the real estate and $11 million to the business operations/ other.

Now John is ready to find exchange property to complete his exchange. Since John values diversification, John asks Avesta to assist him in 1031 exchanging his $9 million into three separate apartment communities in different cities and states.

Through the 1031 exchange, and ignoring depreciation, John is able to defer the 23.8%+ (~$1.84 million) in capital gains taxes he would’ve had to pay on his $8 million gain on the real estate – and John will continue to generate yield and total return on the $1.84 million instead of giving it to the IRS. At the end of the process, John ends up with substantial liquidity from selling the Operations portion of his business and has the same real estate allocation as before his sale, yet is more diversified and is generating annual income and long-term gains from the new real estate investments.

Before you Sell a Property - Let Us Know

Did you know that a person doesn’t have to be selling an apartment community to use a 1031 exchange or to invest in one? In fact, a person can 1031 exchange a rental home, an office building, a retail center, a working ranch, mineral rights, or even ordinary land into an Avesta apartment community.

Simply let us know that you or your client has an upcoming sale and Avesta will go to work - from helping you utilize a Qualified Intermediary prior to the sale, to identifying a replacement property that fits your requirements, to handling the legal documents for the purchase. Avesta offers our partners the ability to maintain their exposure to real estate in a tax-efficient manner, while providing access to larger, more efficient properties that are professionally managed by Avesta. No more dealing with tenants, leases, or broken appliances – Avesta handles all that and more.

What is a 1031 Exchange?

The IRS allows investors to defer paying certain taxes when selling investment real estate by reinvesting the proceeds into a new property. For example, if you or your clients are selling an investment property on which there is a profit, there will likely be capital gains tax on that sale. With a 1031 exchange, however, the IRS allows an individual to purchase a similar property with the proceeds of the sale without the tax being paid at that time. Why pay capital gains taxes to the IRS when you or your clients can keep all of that money at work?

The example below shows just how powerful a 1031 exchange can be to an individual’s wealth over time:

1031-exchanges-chart

More About Avesta!

Avesta is a fully integrated real estate investment and management firm focused on middle market multi-family communities in high growth markets. Avesta manages over 12,000 homes across Florida, Texas, Colorado, and Arizona. Avesta has extensive experience in value-added investments. Our resident-focused operations team has increased portfolio revenue 48% 1 and NOI 214% 1 , delivering a 23.5% net IRR 1 to our investors.

For additional information on how Avesta can assist you with your 1031 exchange, please email Trevor Dallas at tdallas@avesta.com.

 

Sincerely,
Your Avesta Team

1. Through September 2017. Net IRR average of all unrealized investments that Avesta has owned over 24 months and all realized investment entities since inception.
2. Avesta and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.
provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers before engaging in any transaction.
3. Assumes 70% leverage and 8% yield.