Like kind refers to the type of property being exchanged. You can exchange any investment real estate for any other type of investment real estate – for example, vacant land can be exchanged for rental property. In most cases your personal residence is not a like-kind investment property. In addition, you can often exchange one property into multiple properties. The three-property rule allows for an exchange into three separate properties that seek to provide diversification to your portfolio. However, diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
To accomplish a fully deferred tax exchange the rule of thumb is…exchange even or up in value and exchange even or up in equity and debt.
The Boot is a portion of the sales proceeds you receive from a 1031 exchange that isn’t re-invested in a replacement property or qualifying real estate investment. To the extent that you do not exchange even or up in value and/or exchange even or up in equity and debt, you will have received non qualifying property (“boot”) in your exchange. If boot is received, tax is computed on the amount of gain on the sale or the amount of boot received – whichever is lower.
The list of potential benefits and drawbacks of a DST is not all encompassing. There are material risks associated with investing in real estate securities including illiquidity, general market conditions, interest rate risks, financing risks, potentially adverse tax consequences, general economic risks, development risks, and potential loss of the entire investment principal.
Institutional-grade properties generally refer to a property of sufficient size and stature to merit attention from large national or international investors, and typically have the characteristic of high-quality assets in major markets and at price points beyond the reach of individual investors and smaller partnerships.