Syndicated passive replacement programs allow active landlords to exchange their rentals for properties operated by other people. Such properties may be located in other states that offer more appealing prospects for demographics, economics, regulations and taxation. One can achieve portfolio diversification with DSTs to a degree not possible with self-owned real estate. Of course, when it comes to releasing control, what attracts some investors may repel others. Passive replacement programs may be highly illiquid. And DSTs include substantially greater fees than traditional real estate. To make the transition from active to passive ownership, you must take the first step with a qualified real estate broker to list your rental. Once your property is under contract, retain an exchange accommodator to receive the proceeds of your sale from escrow. Finally, consult with a real estate investment firm like 1031 Capital Solutions to help you find and invest in a 1031-qualified replacement program. Like many housing providers, you may wish to remain invested in multifamily real estate. Most passive replacements we have access to are large, class-A apartment communities located in suburbs of major markets in the Midwest and Southeast. Complementary asset types include self-storage and senior housing, for example. 2021 was a record year for real estate appreciation, following a dozen years of consistent value growth. 2022 may prove to be at or near the top of the cycle. In an upcoming 1031 exchange, you are likely to sell high but also buy high. It is important to have realistic expectations for the next several years of real estate performance, and to recognize that the near future may not mirror the recent past.
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