Why is the 1031 exchange a great real estate solution?
The real estate industry is quite complicated and can sometimes be difficult to understand. There are plenty of rules and norms you need to respect, so if you are new to this, you may need specialized advice. You may be surprised to find out about programs such as the 1031 exchange, a new thing especially dedicated to those who are operating with commercial properties. In spite of being a modern and beneficial type of transaction, a lot of commercial real estate buyers are not taking advantage of it. This tax deferred operation offers you much more than a simple real estate transaction generally would. Normally, you would sell the property, pay taxes and then go on and invest in another property. With the 1031 exchange, you get more freedom and fewer taxes, in a wide array of situations. One of the greatest benefits is that resourceful buyers can close deals that would never be possible through a sale-purchase process, but there are many other things you need to know. Read on to discover why this strategy is one of the most reliable at the moment.
Like kind exchange
This expression may sound odd at first, but it actually describes a simple process. You can always exchange a property that is held for investment with another one, whose purpose is similar to the first one. As an owner, you will be allowed to get deferred as far as capital gains taxes are concerned. Like kind exchange can be applied to several kinds of real estate, such as single family rentals, apartments, farms, hotels, warehouses, retail spaces, raw land and many others. However, this type of transaction may take time due to matching, so be patient because in the end you are likely to obtain considerable gains.
One of the main reasons realtors decide to try the 1031 exchange is because it provides them with the possibility to defer taxes and thus maximize returns. Executing this operation means you have to pay less money and this automatically induces the idea of greater gains. Since you are left with more liquid money, you can immediately start investing in something else, without having to wait for multiple transactions to be completed. So, by choosing this solution you manage to get an incredible financial leverage. For long term plans, the best thing you could do is developing a 1031 exchange strategy, in order to accelerate investment and build a reliable cash flow.
Another great benefit of the 1031 exchange is that is helps you get rid of real estate operations, such as paying maintenance expenses that demand a lot of management. If you own a house or apartment whose maintenance involves a lot of costs, then you can simply trade it for a similar ones, but whose administrative needs are fewer and less expensive. This way, you can forget about useless transactions and high monthly costs.