Hi, I’m Marcus Rodriguez, an active investor, and owner of three investment properties. This day is special as five years ago, on the same day, I had done my first 1031 exchange, and the benefits that I received in these years make this a special day. Frankly, I had no idea how a 1031 exchange works or for the matter, is it a wise decision to go with one? You might have the same apprehensions. I hope my story will give you the required insight into this unique tax deferral strategy.
Why I opted for a 1031 Exchange?
As an investor, especially as a landlord, one thing you don’t want to indulge in is property management. After all, it requires a lot of time and effort, and I did not want to give away anything. This made me look for buyers for one of my investment properties. I was ready to sell it out on the first go. When I asked my advisor for the same, he introduced me to the 1031 exchange. He explained that if I go for a direct sale, I will have to pay the capital gains taxes. Whereas, a 1031 exchange lets you defer capital gains taxes indefinitely. When we calculated the potential taxes, it turned out to be a hefty amount. That was it. I wanted to save those more than a thousand dollars on taxes, which made me choose the 1031 exchange.
I suggest you the same!
Whether it’s the burden of property management or the rising operating cost of your property, you can get relief by opting for a 1031 exchange. Just trade your investment property for another property, and you’re done. Enjoy the tax benefits! And don’t forget to get your 1031 exchange properties list from a local broker or a real estate firm before investing.
A 1031 Real Estate Investment Trust investment could be an alternative.
A Real Estate Investment Trust or REIT owns and operates investment properties. REITs let you invest in a secure investment structure. REITs function on a model under which they lease properties to tenants and receive rents on those properties. Whereas, some REITs also lend money to real estate investors and earn interest on mortgage-backed securities.
Benefits of investing in a REIT –
- Transparency – REITs are highly transparent. They distribute the profits yearly and half-yearly.
- Easy to buy and sell – You can buy or sell a REIT’s shares on the National Stock Exchange. Almost all REITs are listed with the Securities and Exchange Commission (SEC) and are sold on the National Stock Exchange.
- Higher Dividend – A REIT must distribute 90% of its taxable income among its shareholders, which means you get a higher return on your investment.
- Lower Risk – As compared to direct real estate investment, REITs have lower liquidity risk.
Varieties of REITs –
- Equity REITs – Equity REITs lease spaces to tenants and receive rents. You can buy shares of Equity REITs just like other stocks.
- Mortgage REITs (mREITs) – Mortgage REITs are different from Equity REITs. Mortgage REITs lend money to real estate investors and earn interests on mortgage-backed securities.
- Hybrid REITs – Hybrid REITs are a mixture of Equity and Mortgage REITs, which means they lease spaces to tenants as well as lend money to real estate investors.