1031 Exchange: Real Estate Investors Need to Know!

Published: 20th June 2011

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Teaser

Want to improve your real estate investment cash flow,
increase your investment leverage, while increasing your
tax savings? 1031 Exchanges provide excellent diversification
for future investment planning.

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What are 1031 Exchanges?

A 1031 exchange makes it possible for investors to sell and buy
property of like kind while deferring tax consequences. This transaction
is authorized by section 1031 of the IRS code; and offers investors a
reliable strategy for the protection of their real estate assets. A successful
1031 exchange allows the investor to reinvest 100% of the equity from
the sale of a property into he purchase of a preferred replacement property
without recognizing any gain. This type of property sale and reinvestment
can either be done through a simultaneous or delayed 1031 exchange. In
most cases a 1031 exchange is done as three-party delayed exchange also
known as a "Starker Exchange" in which an intermediary ensures a reciprocal
transfer of the properties and provides a "safe harbor" against the actual

receipt of exchange funds. It is extremely important that this process be done
correctly, otherwise, a taxable event may occur.

What are the advantages of a 1031 exchange?

1031 exchanges provide real estate owners with a range of opportunities to meet
personal investment objectives including increased leverage, improved cash flow,
diversification, reduction of management obligations, geographic relocation and/or
consolidation. The tax dollars saved by an exchange may be maximized to increase
an investor's overall net worth. Ultimately, the exchange process allows investors to
reorganize and improve their real estate portfolios to best suit their unique interests
and needs. Strategic Tax and Wealth Planning can further maximize the value of current
and future assets.

Wealth preservation is key to maintaining and growing the investors overall portfolio;
while protecting the assets from unnecessary exposure to tax consequences and
litigation. Strong management protocols should be in place prior to selecting any

investment strategy. Consult a professional familiar with the use or creation of
1031 Exchanges; to determine the best utilization for the investor's needs.

It can not be over emphasized that a Strategic Planning Review of the investor's
portfolio, tax strategies and exposures; prior to adopting a strategy, be completed
in a timely manner to create a successful and profitable outcome. Consider the types
of exchanges that can be utilized within the criteria of the 1031 Exchanges. Many
options are available to the investor. Knowing what the investor expects as a return
on their investment (ROI); creates mutual understanding and a very satisfied, valuable
investor.

Resource Box:

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Luis has over 10 years of real estate and lending expertise for the largest lending institutions in the US. Luis has also worked for investment companies as a consultant to oversee the investor relations, and residential real estate acquisitions departments; achieving as many as 50 properties bought, fixed and flipped in a quarter. Luis is a managing partner of HIS Real Estate Network residential and commercial real estate buying group.

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