Buying Industrial Properties As 1031 Replacement Option

Buying Industrial Properties As 1031 Replacement Option

Getting an ideal replacement property for your 1031 exchange can make you do a lot of work. The availability of 1031 replacement properties can be an issue as more and more investors have started opting for 1031 exchanges. However, depending upon the property type, location, price, and area, you may find an ideal replacement option for your 1031 exchange. For example, retail shops or medical offices are easily available, whereas, locating a multi-family building or an industrial property can become an arduous task. Therefore, you must prepare a list of properties in advance that you may want to accept as replacement assets.

You can invest your 1031 proceeds in a wide selection of properties. 

You can acquire an asset as your 1031 replacement property as long as it is an income-producing property. Here are different replacement options for your 1031 exchange –

  • Industrial Building
  • Retail Space
  • Multi-Family Building
  • Office Spaces
  • Medical Stores
  • Single-Family Apartments
  • Triple Net Properties
  • Self-Storage space, and more

Sometimes, in the excitement of locating a high-performing replacement property, 1031 investors forget to pay attention to the rule that asks for a replacement property that is greater or equal in value to the old property. You must read 1031 exchange replacement property rules before sending your identification to the IRS.

Industrial properties are a bit expensive assets but are also the bigger earner. 

Industrial properties may cost you an insane amount of capital. However, they are also the most productive ones. Owning an industrial property in today’s time isn’t every investor thing. Being a real estate investor, you may know that an investor’s job begins once the investment is made. Assets like industrial properties come with day-to-day management responsibilities, which isn’t likely to impress every investor. Because of every-rising management responsibilities, many investors often relinquish their industrial properties. This makes locating an industrial property an achievable task, particularly when you’re doing a 1031 exchange. A 1031 Industrial Properties list can make your hunt easier.

Have you already sold your old property?

As you may know, the first step of a typical 1031 exchange requires the investor to sell their relinquished property. If you haven’t closed on the sale of your relinquished property, your 1031 exchange period hasn’t started yet. However, if you already have, you may want to speed up as the countdown for your 1031 exchange has already begun. At first, you must identify different industrial properties for your 1031 exchange. You can contact a good Qualified Intermediary in your area for this.

You can identify any number of industrial properties.

Though a single industrial property should suffice all your investment needs, you can acquire more than one. Yes, it’s possible. You can identify any number of replacement properties using any of the following rules –

The Three-Property Rule – As per this rule, a 1031 investor can identify up to three replacement properties irrespective of the value. Not all the identified properties need to be acquired, and it entirely depends upon the investor whether they want to acquire one, two, or all three properties.

The 200% Rule – Using this rule, a 1031 investor can identify any number of investment properties as long as the combined market value of all identified properties doesn’t exceed 200% of the value of the relinquished property.

95% Rule – Because of its complexity, barely any investor uses this rule. This rule states that a 1031 investor can identify any number of replacement properties as long as the market value of the property acquired at the end of the exchange is at least 95% of the combined value of all identified properties.

Closing 1031 exchanges without boot.

If you acquire a property of lesser value than your old property, you will be left with some amount of cash in your hands. The saved amount or the remainder will be treated as your capital gains in the transaction and will be taxed. It is called boot in 1031 exchanges. A Boot is said to be any cash or profit recognized at the end of a 1031 exchange. If you save any cash at the end of your exchange, you cannot defer your capital gains tax. Therefore, you need to ensure that the property you’re acquiring worth the same as your old property. Else, be ready to pay taxes on the saved amount.

The future of any real estate investment depends upon the productivity of the property. After all, it’s the revenue generated by the property that counts. To maximize your profit, you must pay attention to a few factors, such as location, neighborhood, development, crime rate, etc. while closing on a replacement property.

Get access to 1031 properties list with the help of professionals – 

Considering 1031 exchange complications and the time limitation, it’s recommended that you speak to a 1031 advisor first. You can get your 1031 Industrial Properties list also from them or a good Qualified Intermediary in your area.

Mostly, real estate firms have a list of investment properties that are available on sale. However, they may ask you for a fee for that property list. Therefore, you can ask your QI to select some available investment assets that you can acquire as replacement properties. Speaking to a 1031 expert can also help in property selection.

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”