Our next podcast discussing smart real estate investing strategies is here! Check it out to learn about exchanging with multi-family properties.
Today Marcia and I talk about the process behind exchanging a multi-family property for a commercial one.
René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker
Smart Real Estate Investing – Part 8
Marcia Edwards: Let’s talk, René, a little bit about what I’ve seen some of, but I don’t know the inner workings of it: Exchanging the multi-family residential property to 1031 the money and the resources into commercial property. Is that happening? Is that a good idea?
René Nelson: Well, pretty much everybody knows that President Biden announced that he was going to cap the 1031 exchanges. In the past, there was no limit or threshold, and now he’s indicating that he will cap that around the $500,000 range.
Marcia Edwards: 500,000. That is not… That’s single-family market.
René Nelson: It is, it is. Really where we see the sweet spot for 1031 exchanges is between one, but it’s typically in the $1.5 million range up to the $5 million range. The bigger stuff above five million, that’s often traded by REITs, life insurance companies, kind of the bigger investors who may or may not use a 1031. So a 1031 is a tax strategy where you’re able to sell a property… As long as you don’t live in it, it has to be an investment property… It could also be land… You can sell it and you can defer the tax by doing an exchange forward into a replacement property. Now, there’s a couple of criteria. Once you sell that property, you have 45 days to identify the property that you’re going into. You can identify up to three properties, but you only want to buy one of them.
Marcia Edwards: You can only buy one of them?
René Nelson: Well, you can buy multiple. I’ve had people do that, but typically what we do is we identify three, but people focus on one and buy one, so they can move all that… And the reason they do that, you’re moving all your money forward, ’cause most people are trying to replenish their cash flow that they’ve received on the property that they’re selling. So quick example. I’ve got someone right now that’s selling a 20-unit apartment complex. They earn about $110,000 in net income. They’re doing a 1031 exchange and they’re going to go buy a Dollar General Store, which is a triple net property, the tenant takes care of everything.
Marcia Edwards: Hands free.
René Nelson: Yes. Owner just get a check in the mail.
Marcia Edwards: So this is kind of urgent if the legislation’s coming down the pike?
René Nelson: Yes, yes, it really is. It’s going to make a big difference, and we’re not sure how quick it’s going to pass, but it could make a pretty big impact for sellers.
Marcia Edwards: So call René about right-sizing your portfolio. I’m Marcia Edwards, Windermere Real Estate.
René Nelson: And I’m René Nelson, and my contact number is 541-912-6583. Have a fantastic day.
René is available to answer your real estate investment questions. If you’re considering investing in a property or want to know how the pandemic may affect your investments, schedule a 15-minute discovery call today.
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