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.
TYPES OF REAL ESTATE EXCHANGES
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
minus
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
edgard@asensiorealestate.com
(310) 618-0808