When is it time to Exchange into new Investment Property?
| Read comments | Add comment / Rate this Article | Article by: Whitney Brennan |
Recently, lower prices have brought out more buyers. Now that prices are nearly down by 40% in some California markets, it may be the time to exchange out of your current investment properties into new investment properties that actually cash flow.
Have we reached the bottom of market? Most likely that will be when you can actually pay your mortgage with your rent or thereabouts. Ideally, you want about a 6% cap rate (income- expenses)/sales price.
You might want to consider doing a 1031 Exchange for a whole lot of reasons but some of the most prevalent reasons are:
PRESERVATION OF EQUITY
A properly structured Exchange provides real estate investors with the opportunity to defer 100% of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash!
LEVERAGE
Many investors Exchange from a property where they have a high equity position or one that is “free and clear” into a much more valuable property. A larger property produces more cash flow and provides greater depreciation benefits, which therefore increase the investors return on their investment.
This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.
