The property you are selling or have sold in a 1031 exchange is referred to as the Relinquished Property, while the property you will acquire with the proceeds is called the Replacement Property. To qualify for a 1031 exchange the Relinquished Property needs to have been an investment property or one held in a trade or business. Likewise, the Replacement Property needs to be an investment property. You can sale any type of investment property in an exchange and replace it with any other type of investment property.
For example, you can sell land and buy an office building, sell an office building and buy an apartment complex, sale an industrial building and buy a retail strip mall or raw land. You can sell one property and replace it with one, two, three, four, or five properties. By way of illustration, you could sell 100 acres of farmland and buy two rental homes, an office condominium, two Family Dollar Stores, and a Post Office leased to the federal government.
It can be stressful to manage properties with all the management headaches, such as operational expenses. That’s why more and more exchangers use their exchange proceeds to buy new properties that generate a stable monthly income without the management hassles.
1031 Exchange Place will help valued clients acquire properties that provide secure income and reduced management or operational costs. These include single-tenant net-lease retail properties leased by national tenants. Once you sell your existing property, you can use the proceeds to buy properties such as Walgreens, AutoZone, Family Dollar, or O’Reilly Auto.
Most net-lease properties have a long-term lease agreement. The tenant usually pays the property tax, utilities, repair and maintenance, and insurance premium. This means you have no financial responsibility on the replacement property you buy.
For those with insufficient capital in their exchange to acquire a net-lease property such as a Walgreens or a Family Dollar Store in their entirety, we can provide part ownership interest of such properties (see Tenant-in-Common) for minimums as low as $50,000. Tenant-in-common ownership provides the ability to diversify 1031 dollars into several net-lease properties.
For example, an exchanger has $150,000 in an exchange and acquires part-ownership interest in a Family Dollar Store in Kansas, a Tires Plus in Colorado, and a KinderCare Learning Center in New Jersey. This investor has tenant diversification as well as geographic diversification.
Each tenant-in-common (“TIC”) owner receives a deeded interest in each property and receives a prorated share of the rent directly deposited into their bank account.
Whatever property type you decide to acquire with your 1031 dollars, we can assist you in the location, negotiation, contracting, and closing (see Replacement Property Assistance). From the time you close on your relinquished property, you only have 45 days to identify the candidate properties for replacement. This can be a stressful time, because if you do not identify and close within the established federal guidelines, you will pay tax on any gain and depreciation previously taken on the property.
We can reduce the stress of finding a suitable replacement property within the time restraints set by the government. We can assist you and any agent or consultant you might have retained to help.