When considering using a 1031 exchange for the sale of one property and the purchase of another, investors should consider the benefits they can gain from such a transaction. These 1031 exchanges are transactions that real estate investors often use to increase their wealth, save on taxes with the tax deferrals, and grow their portfolios. It’s a strategy that is used by many investors across the country.
This type of transaction has many moving parts on tight timelines, but with the right 1031 exchange intermediary and the right properties, investors can see tax benefits and more. This real estate transaction allows investors to quickly and relatively easily get rid of one property and move onto another. There are other benefits besides tax deferrals and switching up property ownership that investors can find, depending on their investment strategy and goals. Continue reading to see some of the top benefits real estate investors often find with 1031 exchanges.
Top 5 Benefits of a 1031 Exchange
1. Tax Benefits
One of the main reasons people utilize 1031 tax deferred exchanges is for the tax benefits that come along with it. In a 1031 tax deferred exchange type of transaction, you sell one property and defer the payment of capital gains taxes by acquiring a replacement property or properties. This helps you keep the money working for you, rather than pay out about a third of that equity in taxes. To fully achieve the tax deferred exchange benefits, you’ll need to use a qualified intermediary, who will hold the funds between transactions.
2. Increased Cash Flow
When you use a 1031 exchange to conduct your next real estate transaction, you are able to increase your cash flow. Your properties can be exchanged for properties that will increase your cash flow and income. If you have a lower value, high maintenance, or underperforming property, sell it and buy one that will make you more money (in the short or long run, depending on your goals and needs) with a 1031 exchange. You can use the sale toward the purchase of your next investment, while keeping more of the money in your investment portfolio.
3. Portfolio Diversification or Consolidation
Each investor has their own goals for their investment portfolio. The strategy for obtaining, growing, or evolving a real estate portfolio is often unique to each individual person. A 1031 exchange can help either diversify or consolidate real estate investments, getting you closer to your investment goals.
For some investors, a benefit of the 1031 exchange is the diversification of your portfolio. You can take one of your properties, sell it, and buy a different or even multiple properties. This would spread out the risk of your investments among multiple industries or markets. You can use the 1031 exchange to expand to a new state, as the transaction isn’t required to be in one location.
Alternatively, you can use a 1031 exchange to consolidate your portfolio into one market or industry as your investment goals change over time. If you are ready to narrow your focus to one area of your portfolio, sell off the properties that no longer fit your goals and purchase ones that do.
4. Improve Long-Term Strategy
There is no limit on how many 1031 exchanges you can conduct over the course of your real estate career. You can use this strategy on numerous properties in your portfolio, as you change goals or increase your investing capabilities.
Once you have begun using 1031 exchanges as a real estate strategy, it can be easy to make this into a long-term strategy for improving your investment portfolio. 1031 exchanges are a great way to reposition your real estate portfolio and grow your investments. Using these transactions can become a great way for investors to strategize to grow your investments – and your income!
5. Streamline Investments
Sometimes when you have multiple rental properties or those with a lot of management or maintenance needs, it can be challenging to focus on other projects that matter to you. A 1031 exchange is an opportunity to get rid of those more time-consuming properties and streamline your investments into those that will give you more time back. You can even use a 1031 exchange to obtain a triple net property, which has its own set of benefits that can help your investment portfolio grow and strengthen.
Why a 1031 Exchange Might Be Right For You
A 1031 exchange is not right for every real estate transaction, but if you are looking to gain tax deferrals and change up your portfolio, a 1031 exchange can help accomplish this. The five benefits discussed above are a big incentive for many investors. However, before entering into the 1031 exchange process, know that there are strict timelines and regulations you must adhere to in order for this type of real estate transaction. This shouldn’t deter you, as experts can help guide you through the process for every transaction you look to make. With a 1031 exchange, the benefits often outweigh the challenges, especially when you find a trusted source in your 1031 exchange intermediary.
A 1031 exchange intermediary can help you understand the 1031 exchange rules and meet all the deadlines required in the timeline. They are essential to the success of a 1031 exchange, not only in explaining the entire process but also holding the funds and coordinating the transactions. A partial 1031 exchange intermediary can make the process much more painless for you as the investor, and ensure you receive maximum benefits from the transaction. Aside from finding the right 1031 exchange investment property or properties to invest in, finding the right intermediary is one of the most important aspects to your real estate transaction.
Discover our 1031 exchange property listings today! At Sands Investment Group, you will find a team with 1031 exchange experience who are dedicated to helping investors by identifying tax deferred exchange properties and making the transactions required to fulfill the 1031 exchange requirements. In order to tap into all of these benefits of the 1031 exchange, work with qualified professionals by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.