If you want a fast and profitable investment, appropriate for a family business, you should consider like-kind real estate investments. They are easy to manage, but those interested in such investments still need a little guidance from specialized companies. Their assistance is priceless when it comes to exchange real estate properties. Still, below we have some information on these investments some might find useful.
What is 1031 property exchange?
1031 investments allow the investor to defer the taxes usually involved by any type of transaction. Because the properties are not sold, just swapped, the IRS does not apply any tax law to them, which makes them the perfect kind of investment, if you are the owner of a commercial property. These investments are available only for commercial properties, and they offer increased levels of flexibility to the owner. They can adjust their investments to increase or decrease the amount of effort put into managing them and they are able to bring quite a profit to the investor. Because they are tax-deferred investments, the investors have more re-investment capital.
What does like kind mean?
Unlike what you might think, you don’t have to swap similar properties. The properties you plan to exchange only have to be evaluated at the same market value in order to accomplish the transaction. There must not remain any cash from the transaction, otherwise it will become a subject of tax laws the IRS applies.
Are there more types of 1031 exchanges?
Yes, those interested in this kind of real estate property exchange, should be aware about four types of exchanges.
Simultaneous exchanges – these are those transactions in which the investor identifies a replacement property for their own in the same day they put their property on the market. However, although this is quite a practical type of property exchange, nowadays it became quite rare.
Delayed exchange – this, on the other hand, is the most common type of exchange in our days. The owner can find a replacement property in a given amount of time, and in most of the cases, they need the assistance of a specialized agency.
Reverse exchanges – the reverse 1031 exchange is quite simple, in theory. You must purchase first the swap property and subsequently you have to sell your own. It is difficult because in order to purchase a property you must find a financial aid, which in most cases is difficult to get.
Construction exchange – there is the possibility to buy a cheaper property than your own with the sole condition of using the remaining money to make some improvements to the one you purchase. This way you will avoid paying taxes.
Here are a couple of important pieces of information on what became in the late years a trend on the real estate market around the USA. These investments are great opportunities of making a sure profit and increasing your reinvestment opportunities in a highly competitive business environment. However, make sure you pick your collaborators carefully.