Every so often, it's wise for real estate investors to review their portfolios and take an objective look at the performance of their holdings.
If there are properties that are not bringing the ROI that the investor desires, there may be an opportunity to sell off some of the lagging or overpriced investments for higher-yielding properties. The best part is that when this is done as part of a 1031 Exchange, it can be accomplished tax-free.
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.
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.
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 Brazos1031 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, our Qualified Intermediaries can assist investors located anywhere in the United States. Simply contact us at (888) 508-1901 to schedule a consultation.