1031 Exchange Tips for Building Wealth

1031 exchanges are a great vehicle for building wealth, but many investors aren’t aware of the wealth-building benefits of the like-kind exchange. In this article, we’re going to discuss how to build wealth with 1031 exchanges of real estate.

It’s All About Keeping Your Money Active

At the end of the day, building wealth is about keeping your money working for you in an active investment.

When you sell a piece of commercial real estate, you are responsible for paying the necessary capital gains taxes on that sale. But wouldn’t it be better to avoid writing that check to Uncle Sam and instead rolling those sales proceeds into a new property? That’s exactly what a 1031 exchange does for you. It helps you avoid a big tax bill and keeps your money compounding and building wealth over time in a continued investment. Who wouldn’t want that?

1031 exchanges exist in the Internal Revenue Code to encourage investment. Deferring capital gains taxes on the sale of real estate is a pretty sweet deal, and the IRS allows it as long as you meet the required benchmarks for 1031. This benefits the economy as a whole, as well as the individual taxpayer conducting the exchange who gets to watch their money continue to build wealth instead of cutting a check for the tax on the sale.

Qualified Intermediaries in Minnesota

We partner with the skilled qualified intermediaries at CPEC1031, LLC to provide our clients with top-notch 1031 exchange services when needed. The intermediaries at CPEC1031 have been facilitating exchanges for more than two decades in Minnesota and across the country. If you are interested in learning more about how you can save money on the sale of real estate, contact us today at our downtown Minneapolis office to learn more about the 1031 exchange process.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Wealth Building Tips

In this article, we will offer a few tips for building your wealth over time with a 1031 exchange.

Real Estate as a Wealth Building Vehicle

Real estate is a preferred vehicle for wealth building because you can defer your gains and continue to compound and build your wealth over time.

For example, let's say that we start off by purchasing a single-family rental. We're good stewards and managers of that property, and guess what? It goes up in value after a few years and we've acquired quite a bit of equity in that property.

Single Family to Multi-Family Property

Now, we're not complacent so we're not going to stay in that single family rental property. Instead we're going to defer the gains on its sale and acquire a fourplex or four unit multi-family property. We're going to take all of our proceeds from that single family rental, roll them tax-free into the new apartment building. Again, we're going to be good stewards and that property will continue to go up in value. After a few years of managing that property, it will have increased our equity position again.

Fourplex to 16-Unit Apartment Complex

Now, we're not complacent and we're going to continue to compound and build our wealth so we're going to dispose of the fourplex using a tax-deferred 1031 exchange and buy a 16 unit apartment complex. Again we're going to compound and build our wealth tax free over time. We're going to be good stewards and operators of that apartment complex and over time again we're going to build equity.

Parlay Your Investment Over Time

We're always going to be buying a bigger, better, more expensive property. Over the course of time we're going to parlay our initial investment from a single-family rental property into perhaps a hundred plus units. The reason that we’re able to do that is twofold:

1. We’re using a very tax-efficient strategy where we’re able to keep our wealth building and compounding for us

2. We’re using other people's money (OPM) to finance the bulk of our acquisitions. With only a little bit down (say 20%) we can take down a much more expensive property. The interest that we pay to the bank is tax deductible. Who really ends up paying the debt service anyway? It's our tenants. The tenants are paying the rent and we're using the rent to pay the debt service.

By building wealth through real estate we’re able to amass so much wealth tax-deferred so much more quickly than we could if we were burdened with laborious taxes.

• Start Your Exchange: If you have questions about building your wealth with 1031, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved