There are many different types of investment properties, and various investment strategies you can employ. Whether you are a buyer or a seller, you should work with a trusted advisor to put a plan in place to accomplish your goals.
For buyers, it is critical to analyze investment properties to understand the current rent roll and cash flow, as well as to project for any vacancies or opportunities to raise under-market rents. Sellers must also complete this analysis (to know what buyers should be willing to pay).
Types of investment Property
Investment properties come in all shapes, sizes and price ranges. In terms of income-producing investment property, some of the main types are condominiums (residential and commercial), multi-families and apartment buildings, mixed use buildings, retail centers, office buildings and development opportunities.
A 1031 tax-deferred exchange allows owners of certain investment or business property to defer paying capital gain taxes upon sale if the owner acquires “like kind” replacement property within a certain period of time.
Timing: The timing of a 1031 exchange is critical, which is why it is critical to work with an expert. Generally, you must identify the replacement property within 45 days of the sale and close on the purchase of the replacement property within 180 days of the sale of the original property.
Benefits of 1031 Exchanges:
- Exchange one property into multiple properties to diversify your portfolio.
- Exchange multiple, management-intensive properties into a single property.
- Exchange a stabilized property into one offering value-add potential.
Procedure: The steps to complete an exchange must be carefully followed in order to defer the payment of capital gains taxes. For instance, the proceeds of the sale from the original property MUST be held by a qualified intermediary, who then submits the funds as payment for the replacement property. It is critical that you work hand-in-hand with a knowledgeable attorney and accountant, in addition to your trusted real estate agent, to be sure that the proper steps are followed.