What should a real estate investor know about 1031 exchanges

With the real estate market growing constantly, and the competition increasing with every day that passes by, managing to keep yourself relevant, and to maintain your investments as profitable as possible can be challenging. If you have lately been looking for ways to raise your profits, or change your business activities for the better, you are probably currently analyzing your options. After thorough research, if you did not use this method by now, you will discover that you have the possibility of opting for a property exchange through Delaware Statutory Trusts. This type of program has been of great help for quite some time to investors and real estate businessmen who desire to build wealth, but at the same time, not deal with the downsides of property sales and purchases. To find out what a 1031 swap implies, why it is so beneficial and what you need in order to access this opportunity, just read the following details:

What does a 1031 property exchange offer?

Before going into the subject further, you will first have to understand why 1031 exchanges have become so popular and what they can offer you as a real estate e investor. The list of benefits this type of program holds can be quite extensive, but there are a few things that stand out the most. With 1031 investments, you will be obtaining the following:

  • Tax deferral – the whole idea of a property swap is to no longer have to pay huge amounts on taxes. If you have been working in this industry for a long time, you probably know how much money you need to pay on taxes with each property sale. This detail can affect your overall profitability, and anything that can help you in this department is certainly worth considering. Well, with 1031 exchanges, taxes will no longer have to be something you worry about. Although one cannot say you are escaping tax paying entirely, you are able to defer it. As long as you don’t sell the property you are getting traditionally, and choose to continue with your exchanges, you will not have to spend any money on taxes, which is certainly extremely advantageous.
  • You can reduce your responsibilities – depending on the nature of your real estate holdings at the moment, you might be dealing with numerous time-consuming and stressful responsibilities. If the management of your properties is not allowing you to have any time to yourself, and you want to benefit from less pressure, this is a great option to resort to. You can replace one or more properties with another that involves fewer management responsibilities. Whether you swap a rental building with a piece of land, or any other alternative you think will work best for your situation, this is a benefit that you have the chance to access.
  • Asset cumulation – because this form of investing is so flexible and broad, you can continue using this method until reaching the level of success and wealth you desire. Investors who have decided to go with this possibility, have managed to obtain asset cumulation over the years, as well as a wealth increase, and this is something you can also do yourself.

What do you need to do in order to be eligible?

Now that you know the benefits of exchanges, you will certainly want to give this possibility more of your thought. However, as you might expect, there are a few rules you should know about and follow in order to be found eligible or a swap. Although the requirements revolving around this real estate program are not many, and can be easily met, being aware of them is still necessary:

  • Properties need to be like-kind – in order for the swapping to be possible, the two properties involves in the process need to be of like-kind nature. So it is not possible to exchange a commercial building, with a land that will be used for other than business purposes, for example.
  • Residential buildings are not susceptible for a swap – Only commercial and business properties are granted a tax deferral, residential building not being eligible for an exchange.
  • There is a deadline you will need to meet – you must acquire a new property during a specific time limit after the sale of your current one.
  • Remaining cash will be taxed – if after the sale of your current property and the purchase of a new one, there is any money left, that amount will be taxed, according to regulations.

Hiring a qualified intermediary – why is it necessary and how to find one

 

It’s clear to see that tax-sheltered investments are extremely appealing and advantageous, giving you much more freedom when it comes to your real estate purchases, especially from a financial point of view. However, besides the rules mentioned above, one other essential thing you will have to do in order to actually be legible for a swap is to hire an intermediary. Having a professional hold on to the cash that you have received after the sale of your property, until you will aware a new one, is something you are legally obligated to so. An intermediary will facilitate the entire process, making things much simpler for you, and being able to support you with further explanatory details you might need along the way. However, because you are trusting the expert with your money, choosing a professional of this kind should not be a decision taken lightly. Analyze your option carefully, and research the reputation of each intermediary and select someone with experience.  

Whether you own a small rental building, or a large commercial property, if you want to make a change in your real estate activities, and keep your investments as profitable as desired, opting for the right strategies is essential. A property exchange program will allow you to climb the ladder of success at a faster pace, while maximizing your profits and keeping your expenses to minimal. As you can see from the abo-stated information, 1031 investments are extremely beneficial, and if you know a few things on the subject you can make the most out of this opportunity.