If you own a rental property in an expensive market, here are 3 things you can do now to speed up your retirement.

It’s easy to become complacent with investment properties. But when a significant portion of your net worth is tied up in real estate, the right plan (or lack of one) can mean the difference between a successful or stressful retirement.

Whether you’re a real estate novice who’s inherited property or a pro who wants to avoid triggering a big tax bill on a good investment, it’s important to know your options.

Keep reading to learn one of the best strategies you can use with rental properties to retire sooner with more income and less tax.

1. 1031 Exchange

Under section 1031 of the Internal Revenue Code, real estate owners are allowed to swap one investment property for another without triggering a capital gains tax bill.

So long as the two properties are “like-kind” (for investment purposes) in the eyes of the IRS investors can defer the tax they would’ve owed on the first property.

2. More expensive markets offer more 1031 value

If you own property in an expensive market (e.g., San Francisco Bay Area, New York, Los Angeles, etc.), you’re most likely underperforming from an income standpoint.

By performing a 1031 exchange of investment property in these parts of the country for property in less expensive markets, investors can typically increase their rental income by 35%, 50%, or even 100% without having to pay any taxes!

In addition, other Real Estate investment options such as commercial NNN properties and Delaware Statutory Funds may be the right investment profile for your clients.

3. Combine 1031 with your homeowners exemption for a Super Tax Break

Did you know it’s possible to take advantage of both the Section 1031 break AND the Section 121 homeowner’s exemption?

By renting out a part of their personal residence for at least two years, investors can exclude $500k ($250k for single taxpayers) from capital gains while deferring the rest using the 1031 exchange rule.

Case In-Point

A couple in their 70s came to us with a mixed-use property worth $3.5MM purchased in 1979 for just $400k. They were recently retired, had very little liquidity or retirement income, and had 85% of their net worth tied up in this building.

But facing a potential $700k tax bill, they knew they couldn’t just sell their investment.

SIFF helped the couple identify two triple net lease investment properties to 1031 exchange most of their old property’s value into along with a small residential condo for them to downsize into. They were also able to take out $125k in cash from the transaction to pay down debt.

About SIFF
If you feel like advising on client real estate investments is beyond your area of expertise, you’re not alone. Many advisors have good intentions but don’t have the tools or experience needed to analyze and identify the best opportunities for their clients. SIFF is a real estate investment advisory and consulting firm (NOT a real estate broker) that works with investors and their advisors to bridge the gap between financial planning and real estate investing.

Unlike real estate brokers and agents whose main goal is transactional in nature, SIFF brings objective, third-party guidance to those looking to leverage their real estate investments to create a shorter path to retirement. To ensure the best possible pricing and service, SIFF also coordinates and oversees all of its clients’ real estate transactions.

Call Us Today: 1 (415) 601-1051 | info@siffinvestment.com

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