1031 Exchange – 7 Reasons Real Estate Investors Do 1031 Exchanges – REIClub.com
1031 exchanges have many benefits for real estate investing. Watch this quick video…
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Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got a quick video on how 1031 exchanges can boost your real estate investment business.
1.Defer Capital Gains
By using a 1031 Exchange an investor defers paying Capital Gain tax indefinitely. Generally, when you sell an investment property you pay the tax on the capital gain (profit). Between the IRS and State it can equal between 15 to 25%, tax, depending on what state you live in.
When you do a 1031 Exchange, taxes can be deferred ndefinitely, if you use the correct strategy. Taxes are deferred until you sell your property non exchange or until you die.
Upon death when heirs take the property, all former capital gains due are forgiven, so it is a great estate planning tool.
2. Time Value of Money
By using the Time Value of Money an investor uses the tax savings by reinvesting and earning more money over time. Let us say that you have an investment property that you wanted to sell and you were going to have a capital gain (profit) and have a tax due, you choose to instead of paying it, to keep the money and invest it. If you pay the tax, you lose the amount of money that you would invest and the amount of money that you could earn
over the years.
3. Generate Cash Flow,
An investor can generate more cash flow by exchanging an investment property for a property with a higher cash flow. It can be done by exchanging to a bigger property or a similar property
that makes more money.
Using a 1031 exchange allows an investor to move to different markets or move closer to home. With the market changing so much, it allows an investor to invest in an areas where the markets are hot having higher demands and property values.
5. Management Headaches
Exchange that property for another property that does not require so much work or responsibility. A good example would be switching from a residential apartment to warehouses or commercial tenants that do not require so much bookkeeping or working hours.
This is a good way to split up investment property when there is a partnership break up, divorce, or a death in the family. Trade one property for several smaller ones. Or trade a bunch of small
properties for one big one. Additionally exchange residential for commercial property. An attorney must be consulted so that all parties are in agreement and it is fair and equitable.
7. Real Estate Investing Strategy
All of these strategies will allow an investor to preserve equity because they are deferring taxes, and increasing the value of investments over time. Modifying an investors portfolio and leveraging your equity as well as estate planning.
So using IRS code 1031, doing a like-kind exchange an investor can defer taxes, reinvest the tax savings and create a bigger cash flow. It allows an investor to relocate investments to a different
region or closer to home. Also they can do a Starker exchange for a bigger property or exchange for several smaller properties or a different kind of property. Some real estate investors use property exchanges to avoid management issues, ultimately using these real estate investment strategies to preserve equity and increasing the value over time.
Again, this is Frank Chen with REIClub.com. Please take the time to leave your comments for this video below and please subscribe to our YouTube channel so you’ll be automatically notified when we upload more quick video tips for you. Take care and good investing.