Q: If I do an UPREIT transaction, I heard I can no longer do another 1031 exchange?

I love when I get this question. It's really a chance to educate people on the tax and non-tax benefits of an UPREIT / 721 transaction.

Executing a series of 1031 exchanges throughout your career is definitely a solid, time-tested strategy. An UPREIT is an entirely different strategy, however, and should be looked differently than a 1031. That said, let's compare it to 1031 exchanges.

Once an owner has decided to sell, we can almost always divide them into one of two camps: (1) someone who wants to stay active in the business of real estate vs (2) someone who is selling to get away from the headaches of actively managing real estate. An UPREIT is for the second person. If you want to stay active and buy and sell, invest, reinvest, seek out tenants, repair properties - all of the things that go along with actively managing - then choose the 1031 exchange.

If, on the other hand, an owner wants a passive option, they are looking for a handful of criteria:

• Certainty of cash distributions

• No capital calls

• Low volatility

• Liquidity

• Flexibility

• Low Taxes

An UPREIT can do almost all of those things better than a 1031 option. So the answer to the question is a different question: why would you want to do another transaction when you are getting everything you want?

An even better way to look at an UPREIT is as a path to liquidity. At the end of the journey, you ultimately want the most amount of cash, with the most certainty and the least amount of taxes. Hands-down, that's a 721 / UPREIT strategy, because the end game is liquid shares of stock. By essentially converting illiquid real estate holdings that can only be sold in one big chunk, into much smaller, more portable shares, you have the ability to transfer as little as one share at a time.

Many people use the shares for such things as charitable gifts, to divide up inheritance, as lifetime gifts (meeting the annual gift thresholds) - all things you can't do with a property.

Therefore, saying you can't do another 1031 exchange is sort of missing the point. UPREITs are a completely different solution.