If you’re new to 1031 exchanges, let’s start from the top. 

What is a 1031 exchange, how do they work, and what are the benefits?
A 1031 exchange (sometimes also referred to as a Starker exchange or a like-kind exchange) is a tax deferral strategy used by many successful real estate investors. If you’re currently an owner of an investment property, a 1031 exchange might be the ideal real estate transaction for you if you want to purchase another property while selling off your current one.

What are the benefits of a 1031 exchange?
The primary benefit of a 1031 exchange is the obvious tax deferment.

With a 1031 exchange, you can defer taxes on the investment properties you own or manage indefinitely until you sell, exchanging from one property to another.

This is especially profitable when you consider what this permits you to do, and it opens up a whole collection of added benefits.

Who qualifies to do a 1031 exchange?
The qualifying parties are pretty much all-inclusive. You can do a 1031 exchange if you’re a property investor or you simply own a business property.

And you can perform a 1031 exchange if you’re an:

• Individual
• C corp
• S corp
• Partnership (general/limited)
• LLC
• Trust
• Or any other taxpaying entity

How Does a California 1031 Exchange Work?
In California, a 1031 exchange allows you, as a real estate investor, to defer the federal and state income tax that would normally be incurred from selling real property, by using the proceeds of the sale to immediately purchase another ‘like-kind’ property.

What are the 1031 exchange rules? 
These are some of the specific rules for 1031 exchanges that occur in the state of California:

Needs to be like-kind property - the new property you’re purchasing needs to be “like-kind” the property you’re selling. 

Must be the same taxpayer - both the property being sold/exchanged and the property being bought need to be purchased by the same party. If the names on the sale property and the exchange property are different, it won’t be accepted.

Needs to be investment or business property - A 1031 exchange can only be performed with an investment or business property. There was previously a loophole that allowed the use of personal property in some cases, but due to recent changes with the 1031 exchange law, that’s no longer the case.

Property must be of equal or greater value - This one isn’t a full requirement, but it will eat at your tax deferment and essentially nullify the whole purpose of the exchange.

Must follow the 1031 exchange timeline - One of the most confusing aspects of this whole process is the 1031 exchange timeline you have to perform the exchange. 

There is a 45-day identification window where you will have 45 days from the close of the sale to find as many as three like-kind properties. And there is a 180-day purchase window where you will have 180 days to purchase a replacement investment property and complete the 1031 exchange. 

Ready to take advantage of the 1031 exchange in California? 
If you feel like a 1031 exchange is right for you, it’s essential that you know what you’re doing and follow all of the rules. The first step is to always ensure you have the right agent by your side. 

Avoid rushing into the purchase of a property because doing so puts you at a severe disadvantage and weakens your negotiating position. Keeping all the legalities straight can also be very challenging which is why having the right agent by your side will make all the difference in 1031 exchanges.

At Marty Real Estate, we have years of experience and can optimize every step of the investment process. By offering competent investment ideas and guidance, we put our clients' investments first. We provide a premium investing experience and help our clients achieve maximum value and often greatly increased cash flow from rental income. Contact our team today to chat with us about your financial goals for 2023 and your 1031 exchange options. 

The three most important factors when buying a property are location, location, and location.

Making judgments based on the property itself rather than the location is something we hear people mention far too frequently, and for us, this is actually a huge mistake, especially when it comes to commercial real estate.

So why is location such a key factor in real estate investing?

Consider this: A property's pricing and condition are subject to change. Even the property's size is adjustable. The location of the property is the only thing that cannot be altered.

Here is why it’s important for private buyers, sellers and corporate investors to do proper research and development (R&D) in a purchased location: 

• You are able to weigh your options. Without adequate research, you'll likely choose the option that's easiest or most appealing from the get-go. This is a big no-no as you may miss out on a great deal that you could benefit from, whether now or in the future.

 

• You have enough time to understand the ins and outs of your prospective purchase. Whether you are working with a high or low budget, performing extensive R&D prior to making a decision will allow you to verify if the property will be profitable for you long-term. Find out every detail that you can about the property and its location that you’re interested in and ensure that you're completely satisfied with all that it has to offer. After all, you don't want to spend a significant sum of money only to discover later on that it isn't exactly what you wanted.

Regardless of how big or small a budget you have for investing in real estate, it's always smart to conduct sufficient research before making a business decision. Quality R&D not only makes entering the real estate market easier, it can also make it more profitable. Understanding communities — their economic and societal trends, as well as their patterns of supply and demand — means you can better forecast property value and buy and sell when the time is truly right, not just convenient. 

Ready to make a move on a property that is outside of your desired location? 

Ensure you do your homework so you can reap worthwhile returns.

Many times, our clients will buy/sell a property because they want to be 'closer' to something. Whether that's school, work, or their favorite hang-out spots, location is always a motivating factor for people. When you're ready to buy or invest in a commercial property make sure the location of it is your top priority and you will find yourself in a great situation in the long run. 

Contact our team today if you want to learn more about how to conduct a comprehensive R&D or market analysis that will yield fruitful and satisfying results.