Project Description
1031 Exchange | Case Study | San Francisco
Investor Profile: The Retiree
A couple in their early 70’s purchased a mixed-use building back in 1979 for $400,000. The couple lived in the building and had a large commercial space in which they ran their business for 40 years. They are recently retired and had very little liquidity or retirement income.
The equity in this property represented around 85% of their net worth. The couple exchanged their property and downsized into a small condo. They took their 500K homeowners exemption and an additional $125,000 in cash from the 1031 exchange for liquidity needs. They also purchased 2 triple net lease investment properties.
The Problem
The client had a large percentage of their net worth tied up in their home and needed more income. If you sell a property that has significant appreciation, the gain may be subject to a high capital gains tax. This tax can be quite large and may deter some investors from selling their properties.
Because the property had already been sold, there were only 60 days left to identify replacement properties for the 1031 Exchange or the client would have to pay $700,000 in capital gain tax.
The Solution
A 1031 Exchange is a great solution to this problem by allowing you to defer any capital gains taxes otherwise due upon the sale. All or some of the sale proceeds can be re-invested to maximize your portfolio’s growth.
Investors Goals
Wanted To Downsize
Needed Constant Income
Diversify Portfolio
No Management Roll
Defer Taxes
Triggering Event
Recently Retired
Cash Need
Equity In-Balance
Property Underperforming
Transaction | Details
Property Sold | Exchanged
San Francisco, CA
This is the original mixed-use property purchases in 1979. It was used by the owner for their personal business and home for over 38 years.
- Sales Price: $3,500,000
- Number of Units: 2
- Property Type: Mixed Use
- CAP Rate: 0.00%
- Yearly Income: $0
Replacement Property 1
Columbus, OH
A triple net lease (triple-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three “nets”) on the property in addition to any normal fees, rent or utilities.
- Purchase Price: $1,600,000
- Number of Units: 1
- Property Type: Triple Net Lease
- Tenant: Starbucks
- Lease Term: 12 years
- CAP Rate: 4.90%
- Yearly Income: $64,000
Replacement Property 2
Eugene, OR
A triple net lease (triple-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the three “nets”) on the property in addition to any normal fees, rent or utilities.
- Purchase Price: $1,000,000
- Number of Units: 1
- Property Type: Triple Net Lease
- Tenant: US Bank
- Lease Term: 9 years
- CAP Rate: 5.00%
- Yearly Income: $65,000
1031 Exchange | Results
+ 2
Properties
+ $124,000
Annual Income
$650,000
Taxes Deferred
2.4 Years
Break Even Period
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1031 Exchange | Case Study | San Francisco Investor Profile: The Retiree A couple in their early 70’s purchased a mixed-use building back in 1979 for $400,000. The couple lived in the [...]
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