Thinking About a 1031 Exchange? Don’t Miss These 3 Must-Dos!!
A 1031 exchange allows investors to defer capital gains taxes on investment property sales by reinvesting in a like-kind replacement property. This powerful tax strategy can unlock trapped equity to increase returns, improve cash flow, and supercharge your real estate portfolio.
If you’re thinking about a 1031 Exchange, be sure to keep in mind these three things:
1. Choose the right financing
First and foremost, be sure to optimize your financing. With rates on the rise, taking time to analyze and model different financing scenarios could lead to major savings when you reinvest your equity. Run the numbers to see if you should replace existing debt, inject fresh equity, or utilize a blended approach when reinvesting your equity. The right financing can mean tens of thousands in savings. Never leave money on the table!
2. Research Viable Replacement Properties
Secondly, identify viable replacement properties that align with your investment goals. Inventory may be tight, but opportunities exist if you know where to look. For this, be sure to work with an experienced 1031 advisor (even if it’s not SIFF) to pinpoint assets suiting your needs. Evaluate your target returns and risk tolerance and identify suitable replacement property types, from multifamily complexes to triple net leased retail. If you’ve never done this in the past, it will pay to work with a partner with extensive market knowledge to find the right real estate, whether DSTs or property. This will make a world of difference.
3. Mind the critical dates and rules
And last but certainly not least, mind those critical IRS timelines and rules. Executing a seamless 1031 exchange requires meticulous planning. Before listing your relinquished property, consult your CPA to review tax liability and strategy. Open your qualified intermediary account before closing so you can quickly park the proceeds. Be ready to identify replacement properties within 45 days and close within 180 days. With proper preparation, the process can be smooth and rewarding.
Here’s the bottom line – a 1031 can be extremely rewarding if done right. As an investor, you’ve built substantial equity over the years. Now may be the time to put that hard-earned value to work. Give careful attention to financing, replacement selection, and timing in order to ensure that you set yourself up for a smooth and successful exchange.
SIFF is a real estate investment advisory and consulting firm that works with investors and their advisors to bridge the gap between financial planning and real estate investing. We bring the tools and experience needed to analyze and identify the best opportunities for clients.
SIFF provides a relationship-based approach to serving our clients by offering objective, third-party guidance to those looking to leverage their real estate investments to create a shorter path to retirement. SIFF coordinates and oversees all of its clients’ real estate transactions which ensures we provide the best possible pricing and service.
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