Accountants and CPA’s are in a unique position to give advice to their clients who may have a capital gain from selling real estate. Investing in healthcare real estate can offer many benefits such as passive income, net lease tenants, direct ownership and fractional ownership into Delaware Statutory Trusts (DSTs). Understand the advantages of investing in healthcare real estate through a 1031 Exchange and why it is a preferred sector for 1031 Investors.

What is a 1031 Exchange?

A 1031 Exchange, also known as a like-kind exchange or Starker exchange, is a type of tax deferral that allows investors to invest their proceeds from the sale of one property into another property while postponing the payment of capital gains taxes. This type of tax deferral has many benefits including the ability to reinvest proceeds in a new asset, deferring the payment of capital gains taxes and diversifying investments.

Healthcare Real Estate Investment

Investing in healthcare real estate has become increasingly popular as it offers many advantages over traditional real estate investments. Healthcare real estate typically offers higher yields and more consistent cash flow than other real estate investments.

Healthcare real estate tenants are often drawn to long-term leases because of the stability and security that it provides. This means that they are less likely to vacate the premises than tenants in other types of commercial real estate, making them attractive investments for 1031 exchange investors. Long-term leases also provide landlords with a steady stream of income over time and can help cushion against fluctuations in rental rates or market conditions. Additionally, healthcare tenants tend to be more reliable and consistent when it comes to paying rent on time which further makes them an attractive option for 1031 exchange investors.

Investors can also opt for direct ownership or fractional ownership into Delaware Statutory Trusts (DSTs). DSTs allow investors to fractionalize their ownership in a large real estate asset (e.g. hospitals, medical office buildings, skilled nursing facilities). By fractionalizing ownership, investors are able to spread their risk across multiple properties which reduces their overall risk exposure.

Moreover, DSTs can offer additional benefits such as tax savings, avoidance of probate costs and improved liquidity. By investing in DSTs rather than individual properties, investors are able to diversify their investment portfolios and take advantage of the tax deferral benefits offered by 1031 Exchanges.

Benefits of Investing in Healthcare Real Estate Through a 1031 Exchange

There are several benefits to investing in healthcare real estate through a 1031 Exchange. Firstly, investors are able to defer the payment of capital gains taxes when they reinvest their proceeds into another property. Furthermore, by investing in healthcare real estate through a 1031 exchange, investors are able to diversify their portfolios and spread their risk across multiple properties. Additionally, net lease healthcare tenants often have long-term leases and are less likely to vacate the premises which can provide investors with a steady stream of income. Finally, by investing in DSTs, investors can take advantage of fractional ownership and enjoy the benefits of tax savings and improved liquidity.

Healthcare real estate is a preferred sector for 1031 Exchange Investors due to its many benefits such as passive income, net lease healthcare tenants, direct ownership, and fractional ownership into DSTs. Accountants and CPA’s should be discussing 1031 Exchange options with clients as this could be a great way for them to defer capital gains and diversify their investments. With the right advice, clients can make informed decisions about how to best invest their proceeds from the sale of their property while deferring the payment of capital gains taxes.