Case Study: De-Levering an Exchange With Cash Out Solutions

Discover how our cash out strategies helped a risk-averse investor unlock liquidity and lower leverage. At Breakwater Exchange, flexibility meets long-term income security.

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Rebalancing Risk With Strategic Cash Out Strategies

Breakwater Exchange’s client was approaching retirement with a healthy portfolio and was in the middle of a 1031 exchange at approximately 60% loan-to-value. As an older investor, his primary goals centered on capital preservation, income consistency, and minimal exposure to lending risk. However, the exchange presented a challenge: he needed to replace the existing debt per IRS rules, but didn’t want to reintroduce large-scale borrowing into his financial picture. Traditional refinancing or highly leveraged DSTs didn’t align with his comfort level, prompting a smarter, more innovative path forward.

Smarter Structure With a Cash Out “Zero” Plan

To meet the IRS debt replacement requirement without the need for a traditional loan, Breakwater Exchange structured a portion of the exchange (about 15%) into a Zero. This triple-net-leased property featured investment-grade tenants and high leverage, but none of the income flowed to the client during the lease. It allowed us to efficiently satisfy the debt component with minimal capital, unlocking the remainder for debt-free property placements tailored to our clients’ low-risk goals.

The Outcome: Minimized Exposure and a Diversified Portfolio

By allocating just a fraction of the proceeds into a cash-out solution, our client met his debt obligations with minimal exposure and redirected most of his principal into unleveraged properties. The result? A more diversified portfolio, significantly reduced risk profile, and stronger net income than before. With no active financing and no foreclosure risk, he gained peace of mind and greater income in one efficient move. This is the Breakwater Exchange way: solutions that honor your goals, not just your numbers.

Partner With Breakwater Exchange for Strategic Cash Out Solutions

If you’re looking to reduce leverage, increase income, or gain more control over your exchange, Breakwater Exchange will tailor a plan using Zero strategies and more.

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FAQs About Our Cash Out Solutions

What is a Zero, and how does it help with a 1031 exchange?

A Zero is a high-leverage, triple-net-leased property with investment-grade tenants. Breakwater Exchange uses Zeros to replace required debt efficiently while minimizing risk and freeing up capital for better-aligned investments.

Can I still receive income with a Zero?

Zeros don’t pay current income, but Breakwater Exchange can pair them with debt-free properties that do. This hybrid strategy helps maintain or increase income while de-leveraging your position.

Can I use a Zero to delay my 1031 exchange?

Yes. Breakwater Exchange can structure a Zero with a tax-free refinance so you can access liquidity and delay reinvestment until you find the right property, giving you breathing room from IRS deadlines.

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General Disclosure
All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future performance. There can be no guarantee that any investment or strategy will achieve its stated objectives. Speak to your tax and/or financial professional prior to investing.

Real Estate / 1031 Risk Disclosure
There is no guarantee that any strategy will be successful or achieve investment objectives; Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; Potential for foreclosure – All fnanced real estate investments have potential for foreclosure; Illiquidity –These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash ﬂow distributions; Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefts. Stated tax benefts – Any stated tax benefts are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.

Opportunity Zones Disclosures
Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings. Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments. Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations. Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available. Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund. Leverage. Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments. Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities. Regulation. It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.