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1031 exchanges

What is a 1031 Exchange?
A 1031 Exchange is a powerful tax-deferment vehicle and strategically used by the savviest real estate investors. The Internal Revenue Code Section 1031 allows an investor to sell a property and reinvest the proceeds into a new property, while deferring all capital gains.

The value of this strategy is priceless heading into the 2019 real estate season, as property prices in most markets have surpassed the recession levels of a decade ago. These market factors are allowing investors seeking value and cash flowing assets to sell at optimum level while deferring taxes and exchanging assets for better Returns on Investment (ROI)and Cash Flowing properties.


The Power of the 1031 Exchange

To better appreciate the power of this strategy, let’s review a simple example below.

  • Lets assume you have a property that has great equity, in part due to market conditions and values that have risen over last few years.
  • The asset for our example is say a 10 Unit multi family but same principle and model can be used for any number of units.
  • You are stuck as far as what more you can charge the tenants and have optimized the property to its optimum level.
  • Want to grow your unit count and cash flow in Emerging Market but don’t want to pay the capital gains tax.
  • We will assume for our example that the net proceeds from such a sale is $500,000.
  • If you leverage these proceeds with a 75% Loan to value commercial loan, your able to acquire a $2,000,000 multi family asset.
  • Based on the sub-market your looking at, you will purchase anywhere between 18-20 units.

At this point, we would have assumed a few variables, but it will be hard to argue the power of leveraging a 1031 Exchange to scale up your cash flowing strategy. With 18-20 units paying rent toward a $1,500,000 loan and property expenses, it is a conservative estimate that you have now increased your cash flow on monthly basis by 40% to 60 % with even greater returns if you bought right.

If interested in learning how you can optimize your cash flowing position by taking advantage of the 1031 Exchange power, contact us to learn more.

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