Are you tired of Tenants, Trash and Toilets?
Wouldn’t you rather go to Tahiti?
Are you a landlord with rental property whose value has significantly appreciated?
Are you ready to cash in those profits and take that trip to Tahiti?
Before selling your property, check with your accountant who will tell you that you will be paying $60,000 in Capital Gains Tax to Uncle Sam. Your accountant will also tell you that adding another $20,000 to your income by that sale is called recaptured depreciation. This will bump you into the next tax bracket and doom you next April 15th into sending the IRS a check for maybe another $7,000.
cash
Are you still ready to sell that property?
It looks like that trip to Tahiti is going to be sometime in the far future…
But wait! You decide to check with your realtor and then find out about a 1031 exchange to defer your Capital Gains. Your realtor tells you if you buy another like-kind rental property of equal or greater value, you won’t get hit with the gains tax on the sale. That is all fine and good, but it does not really get you out of the headaches associated with collecting rent, keeping your unit occupied, finding clean/classy tenants that won’t trash the place, nor does it keep you from getting that 2am call to fix an overflowing toilet. To top this off, now you have to pay more in property taxes and must charge higher rent.
Hmm…maybe this idea is not the ticket to that South Pacific paradise either.
This is the dilemma I heard from my financial clients again and again. They were frustrated and felt trapped in their current situation. So what is a frustrated income property owner to do? After a lot of research and roadblocks, I found the perfect solution that has changed the lives of my clients and took away stress to bring enjoyment of life.
For anyone who is tired of being a landlord and who owns a rental/commercial property that has gone up a lot in value, take heart.
A 1031 exchange into a Tenant In Common Property may be your answer.
There are very specific rules to follow set by the IRS, and the entire detailed process is the subject for a future article, but here’s the gist:
1.Sell your current income property.
2.Before the close of escrow, you declare via a Qualified Intermediary (also called an Accommodator, who is a qualified third party) that you intend to do a 1031 exchange into a Tenant in Common Property.
3.Work with a reputable company to identify a property that you would like to purchase an interest in.
4.At the close of escrow, your proceeds are transferred by the Accommodator to purchase your proportionate share of a larger “A” rated commercial building.
5.You may choose a business center, a medical office building, or similar high-end property.
6.You get a deeded interest in this property, so you can keep it, resell it, pass it to your heirs, or even gift it to charity upon your death.
The way that this works is all the new fractional owners, or “Tenants in Common” hire an ace Management Company to handle all the property management tasks. The company finds and keeps high quality tenants, does the maintenance and upgrades, pays the property taxes, and handles all the day to day crisis that arise.
Probably the three most important factors in this entire process are:
1.Your choice of company that offers the properties for sale,
2.The Accommodator, and
3.The management company.
Make sure each of the three parts isa top notchwith proven track records.
Anything less could spell disaster.
When this 1031 option is done properly, your benefits will be:
- Deferral of all Capital Gains,
- A monthly contractual income
- (usually based on 6-7% return on equity),
- Building depreciation for tax savings,
- Unlimited property appreciation potential, and
- No more headaches of property management.
Good-bye Tenants, Trash and Toilets!
HelloTahiti!
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are meant for informational use only. The information contained on this site does not constitute advice on tax or legal issues. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.