10 Non-Tax Related Reasons Smart Investors Use the 1031 Exchange

Mar 5, 2020

Under Section 1031 of the Internal Revenue Code, a 1031 exchange allows you to invest profits from the sale of one or more commercial properties into one or more “like-kind” and often more valuable properties, and defer the capital gains tax – potentially indefinitely. But, did you know, in addition to the tax benefit, there are many other reasons a 1031 exchange is a valuable investment tool that can positively impact your wealth strategy?

Here are 10 reasons smart investors use the 1031 exchange to lower investment risk, reap the rewards of property appreciation, increase ROI, earn maintenance-free and expense-free monthly income, and more.

Non-Tax Motivations for Using the 1031 Exchange

  1. Seize the opportunity to sell a high-maintenance property, such as an apartment complex or office building, for a responsibility-free, expense-free absolute triple-net (NNN) lease investment.
  2. Offload non-income producing land by trading it for a positive cash-flow revenue source, such as a NNN property.
  3. Sell a fully depreciated property for a more valuable asset, which can then, most likely, be depreciated using cost-segregation depreciation.
  4. Trade a sluggish property for a NNN lease investment in a bustling area that could provide increased value and financial leverage for years to come.
  5. Consolidate multiple, high-maintenance properties or lower-value properties into one or more single-tenant NNN properties that are leased long-term by high-credit tenants.
  6. Diversify by selling one large asset and investing in various NNN asset classes and tenant types to lower your risk and earn reliable monthly income from several sources. This is also helpful for estate planning and dividing assets between heirs.
  7. Trade out of a fractionalized interest in one asset to a fee interest in a different investment property.
  8. Stabilize and complement your overall investment portfolio trading up to NNN properties that can provide near recession-proof CRE investments.
  9. Exchange a parcel of land for a building of equal or greater value, then refinance the property. This gives you options for taking cash out of the purchase through refinancing while receiving a generous tax break from the depreciated building.
  10. Acquire an absolute NNN property anywhere in the country that requires no hands-on management. This is especially ideal if you move away from your current investment property and cannot be there to manage it.

 

“After wasting 40 days with online brokerage firms and local contacts, I still could not find a desirable property to exchange. I was ready to give up and throw money away by paying more taxes than necessary. However, within two hours of discovering Westwood Net Lease Advisors, I was facing a different problem. I had to decide which property to buy and where to fly for a site visit. I had three solid choices and ended up buying a Walgreens in Miami, which has proved to be my best asset. One phone call to Westwood Net Lease Advisors saved me $467,000.” – B. Thomas, Mississippi

Why a Buyer’s Advisor is Critical to the 45-Day IRS Timeline

When using the 1031 exchange, you must submit to the IRS, in writing, the properties you wish to exchange within 45 days of selling your original property. Once submitted, then it’s time to manage the complex transaction and close on your new commercial property in less than 180 days.

This process is complicated and can be tricky if you try to handle it alone. Therefore, Westwood Net Lease Advisors highly recommend you engage a buyer’s advisor BEFORE you sell or even list your property. This helps promote a less stressful transaction and alleviates the worry that’s inherent with the tight IRS timeline.

To Wrap It Up –10 Ways to Use the 1031 Exchange to Grow Your Wealth

As you can see, there are many ways to utilize the 1031 exchange to trade-up to more valuable, reliable, and stress-free properties, diversify your investment portfolio, and earn steady monthly income for years to come.

Westwood’s expert advisors are here to make it simple for you to utilize the 1031 exchange for your next investment, from the property search to close, at no cost to you. Contact us today for a no-obligation consultation. 314-997-5227

 

Looking To Buy Commercial Property?

Find out why triple-net lease real estate investments should be part of your investment portfolio.