Investors who sell their investment property for a large profit must ask themselves, “How can I replace that income with a better asset?”
The goal of most property owners is to “trade up” into a more attractive home, despite the fact that certain market conditions can make it seem impossible. With the right preparation, you can achieve a successful exchange of properties. Make sure you take your time, conduct your research and are prepared to act at the right time, as with any major decision.
Before selecting your ideal section 1031 investment property, keep in mind that 1031 exchanges involve swapping properties of equivalent value. This 1031 investment defers the gain instead of forgiving the tax.
A 1031 exchange investment involves acquiring replacement properties that are “like-kind.” There are very specific requirements for acquiring replacement properties that are like-kind.
How to Choose a 1031 Investment Property
Consider these tips before selecting your 1031 investment property.
You can take your time.
To prepare for your 1031 exchange, it is important to take your time when choosing your 1031 properties. It is not a good idea to purchase a 1031 exchange property overnight. Spending some time early on in order to find a suitable replacement property is essential. Although the 45-day identification period can go by quickly, you should remember that 1031 investment properties are all about the long term.
DO RESEARCH AND IDENTIFY PREFERRED PROPERTIES
Making a real estate purchase is a major decision. Do your homework on the local area before committing to the purchase of a property, and always make sure you are confident that the deal is a good one. In order to choose the right exchange asset, a clearly defined set of criteria needs to be established.
Think about what type of tenants you prefer, such as restaurants, banks, medical facilities, etc. Which locations are required? Is it possible to add capital to your relinquished property so that you can acquire a larger property? The criteria can be expanded as needed if you begin with a very focused set of requirements.
Be prepared at all times.
Investment properties should be thoroughly researched and carefully selected, but you should never hesitate to make a purchase if the opportunity arises. After you find a property, your financing plan should be approved within a few days or weeks. A quick deal can be achieved if financing is in place at the beginning. If your other identified properties do not work out, you might want to consider a Delaware Statutory Trust (DST). Real estate transactions can be tedious if you’ve dealt with them in the past. You can, however, respond quickly to a 1031 opportunity if you prepare ahead of time.