If you’re looking to secure a new property for your commercial property portfolio, it’s worth looking at a 1031 exchange. There are many benefits of a 1031 exchange. We highly encourage anyone looking at a commercial property for sale to research this further. Of course, working with our team of knowledgeable commercial real estate brokers will be the best solution. We’ll be happy to advise you further on this topic.
Keep reading to learn more about how 1031 exchanges can help your commercial real estate portfolio.
What Is a 1031 Exchange?
Before going any further, it’s important to fully understand what a 1031 exchange is when discussing commercial brokerage. If you’re selling an investment property, a 1031 exchange can help you defer capital gains tax. With a 1031 tax-deferred exchange, you’ll be able to sell and buy a like-kind property with the capital gains tax-deferred.
You’ll find this exchange is part of Section 1031 within the U.S. Internal Revenue Code. However, it does have restrictions regarding the time limits of your commercial property for sale. This sale could be an exciting way to increase your purchasing power and income. If you’re looking to invest in a new property this year, you can simultaneously sell something from your current portfolio.
Increased Purchasing Power
A 1031 exchange is a powerful tool for increasing your purchasing power. Capital gains have a maximum tax rate of 20%, with depreciation recaptured at 25%. Furthermore, most states also allow you to defer your state capital gain tax with a 1031 exchange. This deferment offers you additional purchasing options.
Depending on your commercial real estate price, you could end up with hundreds of thousands more to spend. This diversity will increase the options on offer to you. You can bring in additional income year after year by investing in a more profitable property.
With a 1031 exchange, you’ll find that more valuable property becomes accessible. Instead of paying additional taxes to the IRS, you can add this to your down payment. Then, more expensive properties in your local area will open up to you. This type of portfolio helps build wealth. Better yet, you can put the additional funds you generate each year into saving for another down payment.
Real estate investment is a powerful tool for both new and experienced investors. Once you take advantage of a 1031 exchange, you’ll be in a better position to build your commercial property portfolio.
Consolidation of Properties
Because 1031 exchanges offer more flexibility to property owners, you can consolidate multiple properties to invest elsewhere. You could exchange one property for multiple units elsewhere in the country. This option is particularly beneficial in more costly markets like New York and California. It also makes property management much easier, which we explain below.
This method is a great way to diversify your portfolio and take advantage of new investment opportunities across the U.S.
Choose Investments That Need Minimal Maintenance
There’s no denying that property management is one of the biggest headaches for anyone investing in commercial real estate. Think about whether you currently have units taking up far too much of your time and energy. Instead, consider switching to ones that require minimal maintenance and a less hands-on management approach.
You’ll spend less time and effort on these properties. Plus, you can use this energy elsewhere to continue building your wealth. A 1031 exchange offers you the chance to escape looking after high-maintenance rental properties and choose traditional apartment blocks instead.
Increase Your Income
As we enter into the new year, we are all looking for ways to boost our income. A 1031 exchange offers a solution for anyone wondering how a commercial brokerage can help to earn them more money. This advantage applies if you have a vacant piece of land or a property that generates little to no money. It can exchange for a building that will generate a steady cash flow.
The pandemic has changed the commercial real estate market dramatically. Now is a great time to look at investing in apartment blocks for long-term rental. Rent is only continuing to increase, so it’s a profitable option for anyone looking at commercial real estate for sale.
Open to a Wide Variety of Properties
If you are familiar with commercial real estate investment, you undoubtedly know many properties under this category. The term “like-kind” often applies to a 1031 exchange. One thing to note is that “like-kind” does not limit you to purchasing a specific type of property.
A 1031 exchange can open up your selection of properties. You can exchange any real estate you hold with another piece of real estate with the same investment. Therefore, you could switch from owning a piece of land to a block of apartments. As long as they’re both investment properties, you’ll be able to take advantage of the tax benefits. If you feel stuck with your current investment, look at any commercial property that may be a better fit.
When considering the benefits of a 1031 exchange, we encourage you to seek a licensed commercial real estate agent. Our commercial brokerage team will be here to support you with any property sale or purchase. We can share a wide selection of commercial property for sale in your local area with you.
About NAI Glickman Kovago & Jacobs
As the leading commercial realtors in Worcester, MA, NAI Glickman Kovago & Jacobs focuses on commercial property listings. We have an award-winning record in selling restaurant, retail, office, industrial, multifamily, and medical real estate. We can also assist with land acquisition and development as commercial brokerage. Our deep local knowledge comes from decades of business partnerships with key community vendors. Whether you’re buying, selling, or leasing, we can find the right property to fit your needs.
Contact us today if you need help finding commercial property for sale, brokerage, commercial construction, or property management services in Worcester, MA. You can also follow us on Facebook, Instagram, and LinkedIn for more updates about our industrial real estate in Worcester, MA.