A 1031 exchange allows you to sell your investment property and exchange it for another property of equal or greater value. This allows you to defer paying any capital gains tax from the sale of your original property. It is also an amazing opportunity to increase your monthly cash flow! Here are a few of the basics:
Any property held for investment, income producing or not, qualifies to exchange any capital gains.
To defer payment of capital gains taxes after a sale, all proceeds must be reinvested. Therefore the new replacement property must be of equal or greater value.
The ownership entity on title for the replacement property must be identical to ownership entity on title for the relinquished property, unless held in TIC.
Let’s look at some key details for this 4-unit exchange (any size deal is eligible) and compare available exchange options.
15 year corporate lease.
5% increases at each option.
Purchase Price: $2,895,000
Down Payment: $1,650,000
Loan Amount: $1,245,000
Yearly Debt Service: $78,859
NOI: $173,700
CAP: 6%
Avg Monthly: $7,903
Brand new 20 year lease.
8% increases every 5 yrs.
Purchase Price: $3,095,000
Down Payment: $1,650,000
Loan Amount: $1,445,000
Yearly Debt Service: $91,527
NOI: $201,175
CAP: 6.5%
Avg Monthly: $9,846
10 year corporate lease.
10% increase at year 6.
Purchase Price: $2,659,262
Down Payment: $1,650,000
Loan Amount: $1,009,262
Yearly Debt Service: $63,927
NOI: $179,500
CAP: 6.75%
Avg Monthly: $10,113
19 years on a new lease.
12% increases every 5 yrs.
Purchase Price: $2,855,172
Down Payment: $1,650,000
Loan Amount: $1,205,172
Yearly Debt Service: $76,336
NOI: $207,000
CAP: 7.25%
Avg Monthly: $12,890
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