Have you ever thought of becoming a real estate investor? Financial experts often advise to diversify your portfolio. Real estate investors make up approximately one-third of of our local market. If you'd like to be one of those, then I'd like to tell you something about Reno real estate investing. In particular, let's discuss 1031 exchanges.
What is a 1031 Exchange?
Since 1921, 1031 exchanges offered investors the opportunity to reinvest profits from a sale without incurring capital gains taxes. How? First, you sell a property you currently own. Then, you invest the equity in another property of equal or higher value. For example, let's say you own an apartment building or a large Reno home. You held on to it through the mid-2000 downturn. Now, you've got a nice bit of equity built up. After you sell the property, take your profit and invest it in several smaller homes or condos.
With a 1031 exchange, you must invest in a property similar in use to the one you just sold. If you sell a residential property (ie, apartment building, duplex, single-family property, etc.), you must then invest in another residential property or properties. Some restrictions apply. It's always best to talk to an investment broker, financial advisor or real estate attorney to find out more about a 1031 exchange before diving into one.
Types of 1031 Exchanges
There are three different types of 1031 exchanges: deferred/delayed, simultaneous and reverse. A deferred/delayed 1031 exchange is the most common one used. With this option, investors have 45 days after the close of sale on the property they are relinquishing (Property A) to find a new property/properties to invest in (Property B). The purchase of the new property/properties must be completed within 180 days of the close of sale of the relinquished property. With a simultaneous 1031 exchange, Reno investors have a replacement property ready to close on right after they complete the sale of their current property. A reverse 1031 exchange happens when an investor purchases Property B before they have closed on the sale of Property A. Again, it's smart to talk to your financial advisor to find out all the particulars.
Third Party Intermediary Required
A 1031 exchange requires Reno real estate investors to utilize a third party intermediary. This is how you avoid the capital gains tax. Personally, I recommend Starker Services. Currently, they charge $750 for their 1031 exchange services. Contact me and I'll be happy to put you in touch with them.
Charlene Hamilton, Your Reno Real Estate Specialist
Originally posted on my Reno real estate blog here: http://www.relocationtoreno.com/2017/04/24/reno-real-estate-investing-1031-exchanges/.
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