Here’s a quick summary of the 1031 Exchange rules investors should keep in mind when considering selling a piece of investment property:
The entire 1031 Exchange process must be completed within 180 days
Day 1 – Sell your property; proceeds are escrowed with a Qualified Intermediary (QI)
Day 45 – Identify a property(s); you must notify your QI of the identified property(s)
Day 180 – Close on the new property; you must close within 180 days after the first sale
Maintain an equal or greater amount of equity in the replacement property
Maintain an equal or greater amount of debt in the replacement property
raditionally, this strategy is what most people think of whenhttps://greenium.nl/
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considering a 1031 exchange, which is simply 1031 exchanging into more rental properties, multifamily buildings, commercial properties, etc that you will own and actively manage on your own. In this 1031 exchange strategy, you can trade up and enter potentially higher-performing investment real estate assets such as going from four to eight units or 16 to 32 or 50 units, or from a small office building into a self-storage facility or medical office building.
Potential Problems with Strategy 1031 Exchange Strategy Number One
However, one of the problems with this strategy is that you’re still going to have to operate and manage that property on your own and be dealing with the famous “Three Ts’” of being a landlord: Tenants, Toilets, and Trash. Using this 1031 exchange strategy means receiving those calls at night and on the weekends when your tenant is demanding your attention. Of course, you could hire a property manager, but then you’re going to have to manage that property manager and make sure they’re doing their job, which can be just as much work as managing the property on your own. Another problem with this strategy is the potential for over-concentrating your exposure to risk. Investors that do a 1031 exchange into more commercial or multifamily assets on their own might be over-concentrating a large amount of their net worth into a single property in a single asset type or a single geographic location. While it’s important to note that diversification doesn’t guarantee profits or protection from losses, it is something that investors should be cognizant of when considering this 1031 exchange strategy.