Wednesday, January 12, 2011

Investor Reasons for Using 1031 Tax Deferred Exchange of Properties

1031 exchanges of property 

Reasons for Investors to Consider a 1031 Tax Deferred Exchange   

In addition to protection from income tax on real estate sale and purchase deals, investors have other reasons to sell and exchange property:

Shelter Cash Flow

  • A big tax advantage to owning real estate is depreciation.  However, if you've owned property for a long time, you might no longer benefit from that.  It could be to your advantage to sell a depreciated property and acquire a new (possibly larger) property to get a new depreciation schedule and shelter more or all of your rental income from taxes. 

Harvest Dormant Equity

  • Some investors have big equity built up in their properties.  If that equity is leveraged more efficiently, it can produce greater returns.  Exchanging out of a free and clear property and acquiring an apartment building or commercial property might yield better percentage return on the same equity investment.

Diversification of Asset Class and Geography

  • Investors want a diversified portfolio to reduce volatility and either increase return for a given risk or decrease risk.  You should consider a diversified portfolio strategy for your real estate investments, with different geographic areas and types. 

Relief of Management Burdens

  • If you as investor don't want to deal with toilets, tenants and trash, that might be time to exchange into an easier to manage property.  Certain real estate investments (such as Triple Net Leased or Tenant In Common) would probably allow you to own institutional grade property, professionally managed, with same or similar benefits you currently receive without management hassles.  Because of rent and tenant issues, commercial properties could be easier to manage than apartment buildings. 

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Source: Sandra Hartness, Asset Services Inc.  This is for information only and not the providing of tax or legal services.  You should consult with a qualified income tax professional or lawyer about your own situation and whether a 1031 exchange can be used and is best for you.

For information on investor seller and buyer opportunities for homes and real estate at Orange County, California, Newport BeachIrvineLaguna BeachCorona del MarNewport CoastHuntington Beach, or at Costa Mesa, contact us.  

Harrison K. Long - solutions for real estate and business - REALTOR® and broker associate, Coldwell Banker Residential Brokerage - 949-854-7747 (phone) - ExploreProperties@gmail.com (email) - CA DRE 01410855 - SFR short sale and foreclosure resource certified by the National Association of REALTORs®.

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