Exchanging Properties for Shares in a DFW UPREIT | The Peak Group

When you first got into real estate investing, you were probably looking to diversify your investments. Real estate is an excellent vehicle for stabilizing riskier investments because it’s a tangible asset. Plus, real estate has the potential to appreciate while generating rental income along the way. However, where it starts to break down as an ideal means of shoring up your financial future is the work involved in keeping it profitable.

When you first started investing, you probably had no idea the amount of work that was involved in caring for a profitable portfolio. That work only increased as you continued to add large-scale additions to your holdings like duplexes, triplexes, and fourplexes. At this stage in your full-time career as investor AND landlord, you’re ready for a break: what’s the point of growing your retirement through real estate if you don’t even get to enjoy it?

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Thankfully, there’s a great exit strategy for investors: exchanging your rental properties for shares in a DFW UPREIT! If you live in the DFW area, this is a huge advantage to you as an investor who needs relief.

What Is a Real Estate Investment Trust?

  • President Eisenhower created Real Estate Investment Trusts (REITs) during the 1950s.
  • They were introduced as an alternative to traditional mutual funds.
  • Mutual funds are typically made up of stocks and bonds.
  • REITs were created to provide investors with an easier way to diversify their investments.

REITs are the mutual funds of the real estate world! As an investment vehicle, they tend to include both real estate properties as well as an element of real estate financial capital. Investors can make contributions to REITs in exchange for shares, or in the case of an UPREIT, operating units in the business.

REITs have evolved quickly over the past few decades; diversity across REIT types allows investors to tailor their contributions to match their needs. Now, there are multiple variations available: one of the structures that emerged during this period is the DFW UPREIT. The “UP” in “UPREIT” stands for Umbrella Partnership Real Estate Investment Trust, and it’s the umbrella that distinguishes this investment structure from the rest.

Under the umbrella, investors do not convert their properties directly into shares: they first become transformed into operating units in the umbrella partnership. This is actually an advantage to weary investors because it allows you to offload properties without triggering a taxable event that will take a sizeable bite out of your profits!

Exchanging Properties for Shares in a DFW UPREIT

When you invest in real estate, you can generate financial gains in multiple ways.

  • First, your rental properties generate an income by having steady tenants.
  • Second, your real estate appreciates, which is called a capital gain.
  • Your capital gains are unrealized until you sell the property.
  • When you sell your property, you will have to pay capital gains taxes.

The most common tax rate is 15%: depending on the appreciation of your property, this can be a major tax hit! Now, thanks to the DFW UPREIT structure, there is a way for you to avoid this tax burden.

  • Instead of selling your property, you can exchange your rental portfolio for operating units in an UPREIT that works for you! The units you are awarded will match the value of your rental portfolio.
  • Property that is transferred to an UPREIT is covered by IRC Section 721; as a result, this transaction is not taxable.
  • By transforming your properties into valuable operating units, you are able to avoid capital gains taxes on your hard-won investments.

Uncle Sam didn’t put the work in on your properties—you did! There’s no reason you should have to lose their appreciation value to taxes.

The Benefits of UPREITs

A DFW UPREIT allows you to hang onto all of the elements that made property investing so attractive in the first place:

  • Passive income
  • Portfolio diversity
  • Stability.

However, it doesn’t require investors to actively participate in the work of ensuring the properties remain profitable! That’s right: when you convert your properties into operating units, you no longer have to manage the day-in-day-out operations of running a successful portfolio. That vacation you’ve wanted to take? It’s back on the table!

Swapping property for shares in an UPREIT is also one of the most popular estate tax strategies.

  • When you pass property down to your heirs, the value of your properties is included in estate taxation.
  • Every dollar over your estate tax exemption is going to be taxed at 50 percent.
  • This could leave your heirs with an overwhelming tax burden—something you never intended.

When you swap your property for shares in an UPREIT instead, planning your estate gets that much easier. It can help protect your heirs—and help them avoid a hefty estate tax bill! You’ll be able to leave a legacy that matches exactly what you intended—whether it’s for your children or your favorite charity.

Couple in real-estate agency talking to construction planner

Ready for Some Truly Passive Income?

Your investment portfolio was never intended to be a ball and chain! Real estate was supposed to be your escape trajectory to financial freedom. When your properties become overwhelming, they’re no longer serving their real purpose: to work for your financial goals. As an investor, you’re not supposed to serve your properties—your properties are supposed to serve you!

Let The Peak Group show you how simple swapping your rental properties for shares in a DFW UPREIT can be! We’re here to help you shift to a hands-off method of investing. By moving your rental portfolio into an UPREIT, you unload the burden of property management while enjoying everything that made real estate so attractive! This allows you to sit back, relax, and watch your investment climb in value.