Five Questions for: Capital Square’s Founder and Co-CEO Louis Rogers

Few figures have shaped the modern 1031 exchange landscape as profoundly as Louis J. Rogers. A pioneer in securitized 1031 exchanges, in the early 1990s, Rogers helped establish the tenants-in-common and Delaware statutory trust structures that transformed real estate investing for individuals seeking tax deferral and wealth preservation.

Now, after decades at the forefront of this ever-evolving industry, Rogers has authored a definitive guide to Section 1031 exchanges, which AltsWire recently spoke to him about for our periodic “Five Questions for” series. Rogers’ new book, Section 1031 Exchanges: How to Swap Till Ya’ Drop, Building Family Wealth While Minimizing Taxes, distills complex tax strategies into an accessible resource aimed at empowering everyday investors to build lasting wealth.

AltsWire: What inspired you to write this book on 1031 exchanges, and what impact do you hope it will have on readers or the industry? 

Louis Rogers: Over the past 40 years, I have seen many families build enormous wealth by structuring real estate sales as tax-deferred Section 1031 exchanges. In this way, the profits and cash flow compound over time without the burden of taxes. This is how the wealthiest families in the nation have prospered over many decades. At the same time, I have seen others not take advantage of favorable tax rules and their assets diminish from taxes. This book is intended to help regular folks minimize taxes and maximize profits. By using existing tax law, real estate investors are able to build family wealth over time; they can defer taxes indefinitely and even obtain tax forgiveness.

Plus, the proceeds from every sale are being donated to the Children’s Hospital of Richmond at Virginia Commonwealth University, i.e., VCU. The nationally ranked pediatric hospital is building profound legacies in their own right.

AW: What gap in the market or in investor education were you hoping to fill with your book, and how do you see it complementing your work as a sponsor of 1031 exchange securities?

LR: There are several textbooks and treatises on Section 1031, but most are extremely complicated or deadly dull. This book is intended to cover the entire landscape of tax-advantaged real estate investing but in a lighter, more approachable manner. My goal is to use tangible examples and true – sometimes even funny – stories to illustrate many complex concepts, allowing a reader to walk away equipped to put their new knowledge into action.

AW: You’re credited with pioneering the packaging of 1031 exchanges as securities in the 1990s. How has the landscape evolved since that milestone?

LR: Back in the early ’90s, after we helped to establish the tenants-in-common industry, the TIC structure was used widely as replacement property for Section 1031 exchanges. The goal was to create a structure where investors could 1031 exchange into investment grade real estate, much larger and much higher quality than most could afford to own on their own, with turn-key management. We did this by breaking the property down into a fractionalized ownership model that we named tenants-in-common. Working through this revolutionary structure but also seeing where further strengthening was needed, next, we used the DST structure that also qualifies for exchange treatment and relies on a sponsor to operate the property for the investors. The DST structure has worked exceptionally well for the past 15 years. It’s the structure my firm, Capital Square, originally focused exclusively upon at our founding in 2012.

Still, the industry keeps evolving to the advantage of the investor, and I have spent my career in the midst of it all. The next iteration today is the DST-to-UPREIT transaction, where a DST investor can exchange their DST interests for operating partnership units in a REIT. This is done under Section 721 and is also tax-favored – no current taxation. By participating in an UPREIT transaction, investors are able to diversify their investment because REITs typically own a large number of properties. Unlike a single asset DST, the investor in an UPREIT is diversified. If something were to happen with a single property, there are many other properties to carry the investor, unlike being concentrated in a single property. Also, UPREIT investors continue to share in the tax benefits associated with real estate, including depreciation and operating expense deductions to shelter their distributions. It is truly the structure of the future, where an investor can enjoy perpetual tax deferral without having to structure another exchange every time their 1031 property matures.

These evolutions and their inherent opportunities are my favorite subjects to explore with Capital Square investors and anyone interested in building multi-generational family wealth.

AW: What trends or developments do you anticipate shaping the future of tax-advantaged investing in the next five to 10 years?

LR: We’re seeing a trend toward higher-quality DST properties with an active manager, such as Capital Square Living, our firm’s property management division, and, recently, DST-to-UPREIT transactions, as noted. Both of these maximize investors’ returns in a passive investment – no more tenants, toilets, and trash burdening an active rental property landlord.

In addition, qualified opportunity zone funds continue to transform the real estate investment landscape, empowering investors’ wealth-building goals while making dramatic economic impact on cities and states. I’m very proud that Capital Square leaders’ voices have been a part of opportunity zone industry conversations, with senators in Washington, D.C., as new legislation is proposed and at industry summits alongside nationally recognized experts.

AW: If readers take away just one idea from your book, what should it be – and why does it particularly matter now?

LR: Knowledge is key. When you know how the tax rules work, you can plan throughout your lifetime to maximize returns and minimize taxation. It’s the holy grail: tax deferral leading to tax forgiveness. We call it “swap till ya’ drop,” which you’ll see in the title of the book. It doesn’t require a PhD. It requires education that can be gleaned from trustworthy resources, planning, and a little hard work. Section 1031 Exchanges: How to Swap Till Ya’ Drop, Building Family Wealth While Minimizing Taxes was written to help more people of all kinds reach that holy grail.

Click here to visit the AltsWire directory page.