Important Things to Consider When Doing a 1031 Exchange

Engaging in a 1031 exchange for your real properties is a viable investment that you may have heard about in real estate circles or have been advised on. You may even be eyeing some deals already. However, you should think about a few things that can help you when determining how to go about your exchange.

  • Is the property you’re eyeing something you can sustain?

The exchange of NNN properties, or triple net lease properties, is one of the common ways to go about these. When you acquire a triple net property, you will be taking ownership of a space that gives you a steady income with considerably lower risks.

It should be kept in mind, however, that you will still be paying for maintenance, taxes, and insurance on top of the rent. While many term agreements can be settled before the exchange to help keep your expenditures balanced through the agreed terms, you should still consider factors like price increases and rising rates when thinking about keeping up the property.

If you lay limits out and are wise with your budget, though, this could be a solid investment that can yield you reliable returns for a long period.

  • Are you set on keeping this new property?

hands over tiny house model

As with any new real estate foray, it would be wise to consider whether you see yourself maintaining tenancy in a long-term setting. Think about what you plan to do with your prospect once you get it. If it’s currently a running operation, will you continue it as it is, or do you have other plans with the system for the future?

Even though it may seem early, it would be good to think about the property’s future before it’s in your hands because that can determine its future value and whether it’s a substantial exchange you are getting. The conditions it’s in and what you envision for it can all be determining factors to what you’re trading up for.

  • Are you looking for more exchanges, or do you want to put your new investment to use?

Building on the previous consideration, you will want to think about how viable this new property will be in terms of actual use or if you will use it as a levy to acquire more properties. 1031 exchanges can be done one-to-one, or you can get multiple smaller assets as long as they end up in equal value to the one you are exchanging.

If your goal is to collect more properties, finding the right exchanges will have to be geared more toward this objective. Think about whether this one location is worth it for you or if you would eventually want to use the assets to conduct multiple property exchanges in the future.

Although it may be both exciting and overwhelming to think about, 1031 exchanges are a suitable method of dealing with your real estate. The best way to ensure a good deal is to reach out to a professional and get guidance on this so that you can go about it relatively worry-free.

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