Four Reasons to Consider an Exchange

Your 1031 Exchange Guy

Notes from Leonard Spoto:
One of the main goals of investing is to buy low and sell high. Often however, investors miss the opportunity to sell at the peak of the market, yet decide to unload an asset for other strategic purposes. At Asset Exchange Company we have worked with clients who have sold real estate for many reasons during different phases of the economic cycle. Some of the reasons our clients have chosen to sell and exchange include:

Shelter Cash Flow – One of the significant tax advantages to owning real estate is depreciation. However, if you’ve owned property for a long time, you may no longer be benefiting from depreciation. In fact, it may be advantageous to sell a fully depreciated property and acquire a new (larger) property to obtain a new depreciation schedule hence sheltering more (or all) of your rental income from taxes. For additional information about the benefits of depreciation, click here.

Harvest Dormant Equity – Many investors have considerable equity built up in their properties. Often, this equity, if leveraged more efficiently, can produce greater returns. For example, a rental home worth $1MM, owned free and clear, may rent for $3,000 per month, yielding a return of 3.6%. Exchanging out of the property and acquiring an apartment building or a small commercial property, for example, may yield between 6-8% on the same amount of equity, effectively doubling the return.

Asset Class and Geographic Diversification – Wall Street has been advocating the benefits of diversification for many years. A diversified portfolio allows an investor to reduce the volatility of a portfolio and either increase return for a given risk or decrease risk for a given return. It may be prudent for you to consider a diversified portfolio strategy for your real estate investments. Real estate investors generally achieve a diversified portfolio by acquiring real estate in different geographic areas, by acquiring different types of real estate, or both. If you own all of your investment real estate in a flood plain, or on a fault line, it may be time to diversify.

Relief of Management Burdens – Tired of dealing with toilets, tenants and trash? It may be time to exchange into an easier to manage property. Triple Net Leased investments or Tenant In Common investments may allow you to own institutional grade property that is professionally managed, providing the same benefits you currently receive without the management hassles. Commercial properties may also be much easier to manage than Section 8 apartment buildings. If you are looking to reduce your management burden, it may be time to consider a 1031 Exchange.
If you have any questions on this article, please feel free to contact Leonard Spoto anytime at 877-471-1031 or visit their website at http://www.ax1031.com/