1031 Exchange into a REIT
Real Estate Investment Trusts (REIT)
REITs, or real estate investment trusts, are companies that combine the capital of many investors to acquire or invest in income-producing commercial real estate and related assets.
Liquidity
Generates Income
Value Appreciation
Retirement/Estate
Diversification
Tax Benefits
Topics Covered
Why explore REITs?
There are approximately 150 million Americans invested in REITs through 401(k)s, IRAS, pension plans, and other investment funds. By combining assets that exhibit low correlation (such as REITs), investors can work to reduce portfolio risk without sacrificing return potential. Low or negative correlation means that investments behave differently from each other through changing market environments.
Inflation Hedge
Acquiring income-producing properties with built-in rent increases or the potential to increase rents gives stockholders a unique opportunity to keep up with inflation as well as participate in capital appreciation.
Passive Diversification
REITs can be diversified by property type, location, tenant and/or lease term which can help smooth portfolio risk. REIT investors own interests in income-producing properties but there are no management responsibilities to worry about.
Liquidity
REITs are attractive to many investors today because they can offer more frequent repurchase or redemption options based the current per share NAV.
721 Exchange: 1031 exchange into a REIT
A 721 exchange exercises a tax provision that allows for the non-recognition of gains when assets are contributed to a partnership in exchange for partnership interests. Leveraging an UPREIT, income-producing property owners may defer taxation of capital gain until partnership interests are redeemed for REIT shares or cash. Shares of the REIT can typically be liquidated at designed times, in accordance with the terms of the REIT.
What is a REIT?
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. These real estate companies have to meet a number of requirements to qualify as REITs. Some REITs trade on major stock exchanges, and they offer a number of potential benefits to investors.
What is an UPREIT?
REITs often hold their portfolio of real estate through an operating partnership, which structure is known as an Umbrella Partnership Real Estate Investment Trust, or UPREIT. This allows holders of real estate to exchange property for economic interests in the REIT in the form of OP Units of the operating partnership by contributing that property via a 721 exchange.
Estate Planning Benefits
Heirs to limited partners may receive a step-up in the tax basis of their limited partnership interests, effectively eliminating the previously deferred U.S. Federal Income Tax on Capital Gains. Heirs have the flexibility to make individual decisions in respect to the sale of their inherited interests, whereas traditional heirs of investment property may require collective decision making.
Advantages For Retirement
A redemption program for limited partnership interests may provide more liquidity than other forms of real property ownership and may allow owners to redeem interests in whole or in part, potentially managing periodic taxable gain recognition in alignment with specific financial goals and objectives.
About Us
Meet Baker 1031 Properties
At Baker 1031 Properties, why we do what we do is the foundation of everything we build. For our clients, that purpose makes a powerful difference in their experience and, more importantly, in their outcomes.
Our Advantages
A Firm Built for Family, A Partnership Designed for You.
For our clients, why we do it is just as important as what we do.
It makes a powerful difference in our clients' experience and outcomes.
The Owner's Name Is On The Door
In an era of faceless organizations owned by other equally faceless organizations, Baker 1031 Properties LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Gerald F. "Jerry" Baker, III has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.
Baker 1031 Properties is a real estate investment advisory firm, dedicated to helping individual real estate investors use their 1031 exchange proceeds to build diversified portfolios of institutional properties, customized to their financial goals and needs.
Jerry Baker founded the firm out of necessity, as a result of his own desire to bring institutional investment strategies to his family's own real estate portfolio. What he found was a collection of investment products and strategies that offered individuals the opportunity to leverage the same advantages as institutional investors.
The problem? A lack of access to these investments, knowledgeable experts to assist, and the ability to customize the offerings to meet your needs. We invite you to learn more about our story, experience how we are different, and discover the difference for yourself.
Real Estate Experts
It's a novel concept, believe it or not, to expect actual real estate experts to be the people you go to for real estate investments.
Many of our clients come to us after having tried finding investments through their accountant, crowdfunding websites, or a general financial advisor.
Direct Access
Work directly with the firm's founder, Jerry Baker. Jerry has participated in over $10 billion worth of real estate transactions.
Jerry believes clients deserve to work directly with him - not call centers or inexperienced employees.
Turnkey Investments
Did you know that many investment offerings in our industry aren't finalized before you commit your capital? Yikes!
We exclusively offer investment opportunities from large institutions that already own the property and have the financing fully structured. This means the day you invest, you begin collecting potential income and building potential equity immediately.
Frequently Asked Questions (FAQ)
What do investors want to know about Opportunity Zone Funds?
What is a Private REIT (Non-Traded REIT)?
A Private REIT (or Non-Traded REIT) is a real estate investment trust whose shares are not listed on a public exchange. They typically raise capital through private placements primarily from accredited investors and hold a portfolio of income-producing real estate.
What is the main risk of investing in a Private REIT?
The main risk is liquidity risk. Because Private REITs do not trade on public stock exchanges, they are illiquid investments. Investors may face limitations, fees, or long holding periods (often 5-10 years) when attempting to sell their shares back to the sponsor through a limited redemption program.
How are Private REIT dividends taxed?
Distributions from Private REITs are generally taxed as ordinary income (subject to the investor's marginal tax rate), since they are primarily funded by net income distributions (due to the 90% payout requirement). However, portions may be classified as Return of Capital (ROC) or Qualified Business Income (QBI), which may offer tax deductions.
Can I use a 1031 Exchange to invest directly into a Private REIT?
No, you generally cannot use a 1031 Exchange to invest directly into a traditional Private REIT. REIT shares are considered securities (personal property), not like-kind real estate. However, some investors use a Delaware Statutory Trust (DST) 1031 to access institutional real estate before potentially utilizing a 721 Exchange later.
What are the 1031 Exchange rules for replacement property?
The 1031 Exchange rules require a property owner to identify potential replacement properties within 45 calendar days and complete the purchase within 180 calendar days from the sale of the relinquished property. Additionally, a Qualified Intermediary (QI) must hold the funds.
What is the 45-day rule in a 1031 Exchange?
The 45-day rule is the non-negotiable deadline for a taxpayer to formally identify their potential replacement properties after closing the sale of their relinquished property. Identification must be in writing and signed by the taxpayer.
What is 'Boot' in a 1031 Exchange?
Boot in a 1031 Exchange refers to any non-like-kind property or cash received by the taxpayer. Receiving boot is a taxable event and may include cash proceeds or a reduction in the taxpayer's mortgage liability (mortgage boot) that is not offset by new debt.
How does a 721 Exchange (UPREIT) facilitate tax deferral?
A 721 Exchange (or UPREIT transaction) allows an investor to contribute real estate directly to a REIT's Operating Partnership (OP) in exchange for OP Units. This contribution is generally tax-deferred under IRC Section 721 until the OP Units are sold or redeemed for cash or REIT shares.
What are Operating Partnership (OP) Units in an UPREIT?
Operating Partnership (OP) Units are the partnership interests an investor receives in the UPREIT structure. They are typically valued on parity with the REIT's common stock and represent an equity stake in the REIT's entire portfolio, but they retain the investor's original, low tax basis.
What is the main advantage of a 721 Exchange for real estate owners?
The main advantage is the ability to convert a single, actively managed property into a diversified, professionally managed, passive investment (OP Units) while continuing to defer capital gains tax. This provides an exit strategy without immediate tax consequences.
What is the difference between a 1031 Exchange and a 721 Exchange?
The 1031 Exchange is a swap of like-kind real estate for like-kind real estate with strict timelines (45/180 days). The 721 Exchange is the swap of real estate for Operating Partnership (OP) Units in an UPREIT, which has no strict timeline but converts property ownership to a passive equity stake.
Why choose a 721 UPREIT over a traditional 1031 Exchange?
Investors choose a 721 UPREIT over a 1031 Exchange when they want greater portfolio diversification, seek a passive management role, and desire a clear liquidity pathway (converting OP Units to REIT shares) without the recurring burden of finding replacement properties every 180 days.
Can I use a 1031 Exchange after completing a 721 Exchange?
No. Once a property has been contributed to an UPREIT in exchange for OP Units (a partnership interest), that interest is no longer considered "like-kind" real estate. Therefore, the subsequent sale or redemption of the OP Units is a taxable event and cannot be used in a new 1031 Exchange.
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Terms Glossary
Common REIT Terms
1031 Exchange
A provision under Internal Revenue Code (IRC) Section 1031 allowing an investor to defer the payment of capital gains tax by exchanging one investment property for another like-kind property.
45-Day Identification Period
The strict timeframe during a 1031 Exchange when the investor must formally identify their potential replacement properties.
721 Exchange
A tax-deferred transaction under IRC Section 721 where a property owner contributes real estate to a partnership (the Operating Partnership of an UPREIT) in exchange for OP Units.
180-Day Exchange Period
The strict timeframe to complete the acquisition of the replacement property in a 1031 Exchange, starting from the sale of the relinquished property.
Accredited Investor
An individual or entity that meets specific income or net worth requirements set by the SEC, making them eligible to invest in private securities, such as Private REITs.
Boot (1031 Exchange)
Any cash or non-like-kind property received by the taxpayer in a 1031 Exchange. Receiving boot is a taxable event that reduces the amount of deferred gain.
Delaware Statutory Trust (DST)
A legal entity used to hold fractional ownership in real estate, often employed to allow multiple investors to participate in a single replacement property for a 1031 Exchange.
Distributions (REIT)
Payments made by a Private REIT to its shareholders, primarily consisting of income generated by the underlying real estate assets.
Illiquid Investment
An asset that cannot be easily converted into cash without a substantial loss in value or a significant delay. Non-Traded REITs are typically considered illiquid.
IRC Section 1031
The specific section of the Internal Revenue Code that governs the rules and requirements for a Like-Kind Exchange.
IRC Section 721
The specific section of the Internal Revenue Code that governs the tax-deferred contribution of property to a partnership, which is the foundation of a 721 Exchange.
Like-Kind Exchange
The common name for the 1031 Exchange, referring to the requirement that the relinquished property and the replacement property must be of the same nature or character (i.e., investment real estate).
Liquidity Risk
The risk that an investor in an asset, such as a Non-Traded REIT, will not be able to sell the asset quickly enough or at a reasonable price to avoid a loss.
Non-Traded REIT
Another term for a Private REIT, emphasizing that its shares are not bought and sold on a national securities exchange.
Operating Partnership (OP)
The entity used in an UPREIT structure that holds all the real estate and into which property owners contribute their assets during a 721 Exchange.
OP Units
Operating Partnership Units are the partnership interests received by a property owner in exchange for their real estate during a 721 Exchange.
Private Placement
The process by which Private REITs raise capital by offering securities directly to a select group of investors, usually accredited investors, rather than to the general public.
Private REIT
A Real Estate Investment Trust that is not publicly traded, often used by high-net-worth investors seeking access to institutional-quality, income-producing real estate.
Qualified Intermediary (QI)
The independent third party required to hold the proceeds from the sale of the relinquished property in a 1031 Exchange to prevent the investor from having constructive receipt of the funds.
Replacement Property
The property (or properties) that an investor acquires to complete the tax deferral under a 1031 Exchange.
UPREIT
Umbrella Partnership Real Estate Investment Trust. A structure where the REIT is the general partner and majority owner of an Operating Partnership (OP), which allows property owners to utilize a 721 Exchange.
Learn more about Baker 1031 Properties at FINRA's Broker Check
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the Sponsor’s Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney.
There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potentially adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. 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. Because investor situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
Securities offered through Aurora Securities, Inc. (ASI), member FINRA/SIPC. Baker 1031 Properties (Baker 1031) is independent of ASI. To access Aurora Securities’ Form Customer Relationship Summary (CRS), please click HERE. Baker 1031 Properties, Jerry Baker, and (ASI) do not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.
Client examples are hypothetical and for illustration purposes only. Individual results may vary.
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¹The statement that "Over 30% of all experienced real estate investors work with Jerry on their 1031 exchange" is a market share estimate derived from an analysis of third-party market data as of October 2025, representing the proportional relationship between the Baker 1031 Investment investor database and an estimated total market of active real estate investors; this estimate is based on Crexi reporting a 2,000,000 user base, 80% of whom are assumed not to be agents/brokers, and 42% of activity dedicated to investment sales, from which a conservative assumption excludes 15.7% as non-investor service providers (e.g., appraisers, lenders), resulting in an estimated active investor market of 566,664; as the Baker 1031 Properties database comprises over 170,000 individuals or entities, this figure represents 30.00% of the estimated market. Important Compliance Disclosure: The figures and calculations provided constitute a market share estimate based on unverified third-party data and internal assumptions utilized to define the estimated market; Baker 1031 Properties has not independently verified the accuracy of the underlying data, and the term "experienced real estate investors" is defined exclusively by this methodology and its internal assumptions. This communication is not a guarantee of future results, a testimonial, or a statement of performance for any investment product or service, and its accuracy is subject to the inherent limitations of the underlying data and the validity of the internal exclusion assumptions.