Every so often, it’s wise for real estate investors to review their portfolios and take an objective look at the performance of their assets within a 1031 exchange framework.
When certain properties underperform, investors can sell them for higher-yielding options. Through a 1031 exchange, this process remains tax-free. This approach allows you to replace lagging or overpriced investments with better-performing properties without a tax hit.
A Real Life Example
You may currently be holding an asset that is underperforming; maybe it’s rented but it’s producing such a minimal return that it’s not profitable as a long-term hold. You can, however, make a profit on the property in general if you sell in the current market. So, you decide to list the property as part of a 1031 Exchange.
The beauty of doing a 1031 Exchange is that you can defer any capital gains that you may owe on the sale. So, you are able to use all of those funds plus your profits to rebalance your portfolio into properties that better meet your goals. Assets used in a 1031 exchange can significantly boost your portfolio value.
Say, in this scenario, you end up selling an apartment building for 5 smaller single-family homes that have higher profit margins when fully rented. You end up making more money each month, and your portfolio is now larger. Win-win all around!
This process can go on indefinitely as you sell and acquire new assets over the years using the 1031 exchange strategy.
How to Get Started With a 1031 Exchange
The good news is that the 1031 Exchange process is simple and straightforward. You would contact a Qualified Intermediary, like someone on our team here at WealthBuilder 1031 Exchange. You need an intermediary to handle the transaction for you from start to finish.
Your intermediary will then guide you through all the steps necessary to correctly list your property, hold the funds in accordance with IRS rules after the sale of the property, identify a replacement property within the allotted timeframe, and close on your final transaction.
If you’d like to explore your options or you have further questions about using assets in a 1031 exchange, our Qualified Intermediaries can assist investors located anywhere in the United States. Simply contact us at (888) 508-1901.