Smart Moves: How One Couple Transformed Their Investment Strategy with a 1031 Exchange

By Ken Palmen

Dana and Dean D., owners of a small office building in the mountains of Colorado, were growing tired of the responsibilities of hands-on property management. Their building, held in an LLC, provided consistent income but required constant oversight. Eager for a change, they sold the property to a local investor, structuring the sale with an owner-carry note, which allowed them to finance the buyer's purchase while securing passive income. When they included the note in the 1031 exchange, Dana and Dean opted to buy the note out, leveraging the proceeds to diversify their real estate portfolio across multiple assets. This innovative use of a note within a 1031 exchange highlights the complexity of the transaction and the advanced strategies available to savvy investors.

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Dana and Dean seized the opportunity to spread their risk by acquiring a range of properties, each in distinct sectors and regions. Their first replacement property was a partial interest in a multi-tenant flex industrial and mixed-use asset located in Texas. Following this, they purchased an interest in a multi-tenant retail property in Birmingham, Alabama, giving them exposure to a thriving retail market. The third property they added to their portfolio was an interest in a storage unit building, also in Texas, providing them with a steady income stream in a historically stable sector. Finally, they rounded out their acquisitions by investing in a diversified portfolio of healthcare properties spread across the United States. This diversification allowed Dana and Dean to mitigate risk while enjoying the benefits of multiple income streams across various real estate sectors.

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The transaction itself was not without its complexities. Handling the owner-carry note within the 1031 exchange framework required careful planning and precision. Additionally, Dana and Dean’s decision to identify and acquire more than three properties — exceeding the typical identification limit — added an additional layer of intricacy to the exchange process. However, with the guidance of Exchange Resource Group, LLC, they successfully navigated these challenges, emerging with a more diversified, less hands-on real estate portfolio. Their experience is a testament to the flexibility and benefits of 1031 exchanges for investors looking to evolve their real estate strategy while preserving wealth and reducing risk.

For more information, please contact Ken Palmen, CES®

direct: 303.579.5545 || office: 303.789.1031 || fax: 303-496-1031

Exchange Resource Group www.erg1031.com