Could a 1031 Tax Deferred Exchange increase your rental incomes and returns? Most investors fail to capitalize on opportunities that could increase their incomes by 25%, 50% or even 100%! Knowing your investment property options is the key to making sound decisions that can help you achieve more financial security.
Investors want to know if they should wait to Sell or Exchange their properties. Some believe that property prices may go up in the near future and make the common mistake of waiting for that time. Whichever way the market is going you cannot win on both the sale of your current property and replacement properties. By waiting for the right time investors are leaving significant incomes on the table year after year.
Factoring in future interest rates, lending guidelines, inventory and consumer confidence really makes it hard to know which way the market is headed in the near future. It doesn’t matter if the market is going up, down or sideways! The key is to focus on rental income, see why below.
When performing a 1031 exchange we always advise our clients that no matter when you decide to sell you will never win on both ends of the transaction (Selling and Repurchasing). It will always be a wash in all market conditions unless we could sell in a market that was appreciating while repurchasing in a market that was depreciating, not very likely – and if you could repurchase in a depreciating (downward market) would you want to?
1031 Exchange Definition
A 1031 exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that’s qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame.
So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are NOT taxable. Utilizing a 1031 exchange can provide tremendous leverage and increased income all while having no tax burden.
Effects on a 1031 exchange in different markets:
1. Upward market: You sell at a higher price (premium) but also repurchase at a higher price (premium).
2. Downward Market: You sell at a discounted price but also find a replacement property at a discounted (deal).
Every investor should look at what current rental incomes they are receiving and what rental incomes they could be receiving! By performed a 1031 exchange you could increase your returns by as much as 100% (I.E double your income & returns).
1. Current Property: If you currently owned a 4 plex (4 units) worth 1.5 million with each unit paying $1,500 per month, you would be receiving around $72,000 grows rents per year.
2. Proposed Property: If you were able to find a replacement property for the same 1.5 million using a 1031 Exchange with (8) units that could produce $144,000 of gross rental income per year, would you be interested? You would be receiving an additional $72,000 per year. After only 5 years that would be around $360,000 more dollars in you pocket as the property owner.
Smart investors understand that timing is not the most important factor when performing a 1031 Exchange, income is. If you waited just 5 years before using a 1031 Exchange, you would potentially lose $72,000 of rental income every year that you waited.
What should you do?
The key is to analyze your properties performance now to see if a 1031 exchange could greatly increase your income and returns. Receive a complimentary consultation and property analysis from SIFF if you need help.
We give you a great deal of flexibility in choosing only the services you need based on solid information from the consultation process.
To receive a complimentary consultation today Click Here. One of our team members will contact you no later than the next business day to answer your questions and schedule your complimentary review.