It might be a terrible mistake if you aren’t making a 1031 property swap a part of your investment strategy. Investors in the commercial real estate sector have much to gain from taking part in such an exchange. When delving into the intricacies of commercial real estate, being well-versed in the benefits of a 1031 property exchange is essential, particularly when it comes to understanding all about capital gains tax on rental properties and how this tax can be deferred.
As more investors realize the value of taking part in a property swap, there’s a growing interest in 1031 exchange properties in Nevada and other states. Savvy investors are keen on taking full advantage of incentives from the government to improve their position in the sector. The process is named after section 1031 of the tax code and allows players in the commercial real estate sector defer their capital gains.
On the surface, deferring capital gains might not seem like much, but it gives a distinct advantage to the savvier investors in the sector. Escaping the taxman without getting flogged is just a tip of the iceberg.
Put your money to better use
Playing the real estate market calls for deep pockets, generous credit lines, or both. Some investments are, therefore, backed with huge mortgages and loans. As a result, these investors cede a considerable chunk of their rental income to the bank as interest.
Taking part in property exchange can help you lower the amount of interest you pay on these loans. By deferring the capital gains tax, the exchange leaves you with a sizeable amount of money when buying the replacement property. That enables you to take out a smaller loan than you wouldn’t have if you’d followed the conventional sales process.
With a bigger purse, you not only get to purchase a property of higher value but also get to build equity faster. You get to put most of your money to great use instead of giving it to your bank as interest. Again, a higher value property translates to a higher rental income.
Keep your finger on the pulse
Savvy investors understand that not all real estate markets and sectors are created equal. They know that there are various market forces at play at any given time, and these forces have a bearing on the return on investment. These investors are quick to drop out of the non-performing markets into the emerging ones.
Taking part in a property exchange lets you quit the loss-making markets or drop unprofitable properties without taking a hit. Unlike a regular sale, you’re exempted from capital gains tax whenever you sell a property. As long as you play by the rules, you can swap properties as often as you wish or the market allows.
As a result, you can be quick to venture into the hottest market sector or properties. You can also make lateral moves within the industry. For instance, you can switch from retail space if you find the residential market to be more lucrative. The exchange process also lets you diversify your portfolio holding and minimize risks.
While the commercial real estate is teeming with opportunities, you need a smart strategy to grow and thrive. Making 1031 exchange to reit a part of your investment strategy increases your chances of long-term success. You can take full advantage of the opportunities that come with it and grow your wealth. The process can help you escape bad markets while conquering the most profitable markets spread across the country.
