Accumulation of Wealth through the Ownership of Real Estate Asset arising out of a "Deferred Exchange" under Section 1031
In order to formulate a wealth accumulation strategy, investors evaluate the project's free cash flow as well as compare financial indicators including gross schedule income, gross rent multipliers, capitalization rates and cash on cash returns. Thereafter, investors are prepare to execute a real estate purchase agreement, identify an Exchange Accommodator and re-invest their proceeds on a replacement property.
A 1031 real estate exchange is a way to defer income taxes on investment property. Investors will have to pay income tax eventually. The 1031 exchange allows them to defer the tax payment until later, thus this allows clients to build wealth.
Our organization is prepared to represent clients who plan to execute "1031 tax deferred exchange transactions". Frequently, exchangers choose to have their replacement real estate lined up before they close on their relinquished income property. Residential, Commercial and Industrial Real Estate Investors need to identify their 1031 Exchange Replacement Properties within 45 days of closing sale on the real estate asset they are selling. Further, the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property.
Prior to closing the sale of the relinquish property, the seller enters into an Exchange Agreement with an Accommodator for proceeds to be transferred to Accommodator. The exchange proceeds are used to pruchase the replacement property within 180 days.
The replacement property is purchased and closed before the relinquished property. An Accommodator creates an entity -LLC for the purpose of purchasing the replacement property and holding title until the exchanger finds a buyer for the relinquish property.
The investor acquires a property and arrange for construction of improvements -a building on an unimproved lot or enhancement made to an already improved property in order to create value to closed on the exchange; on the property before it is received as a replacement property.
VITAL METRICS TO EVALUATE EXCHANGES
Capitalization Rate: Correlated to Risk
NOI / Market Value = CAP RATE (Debt service is not included in operating expenses to calculate NOI
Gross Rent Multiplier according to a market area
Market Value or Sales Price / Gross Rental Income = GRM
Internal Rate of Return
Year 0 (Initial Outlays -Down Payment
Year 1, Year, 2, Year 3, Year 4, Year 5, Year 6 including sales proceeds = IRR
Net Present Value: Investment Measure for investors to assess whether the purchase
is achieving a target yield at a given initial investment.
The present value of all future cash flows produced by a rental property
the amount of initial cash investment required to purchase the investment property.
EXCHANGE ACCOMMODATOR -INTERMEDIARY
A neutral third party who holds the sales proceeds/funds when investor sells the relinquished property
and has no agency relationship with the seller .
PROPERTIES THAT ARE NOT ELIGIBLE FOR
THE 1031 TAX DEFERRED EXCHANGE
1. Primary Residence.
2. 2nd Home.
3. Vacation Home: Not exchangeable because is for personal use and not for investment.
4. Selling Business Opportunity, including Equipment, Inventory and Goodwill.
5. Flipping Property: Not intended to rent.
Contact Edgard Asensio, MBA if you wish to learn further information the real estate 1031 exchange model
Contact Edgard Asensio, MBA to discuss financing strategy, taxation, risk analysis, market area supply and demand analysis by real estate asset (e.g. office, retail, mixed-use, multifamily, general purpose industrial - warehouse and special purpose industrial -heavy industrial).
If you are interested in learning more on how to generate analysis and modeling of discounted cash flows and expected return-on-investment, you can send an email message to firstname.lastname@example.org