Blog

Many people have asked lately, “Real Estate business?”.  Although volume is down as a result of the overall market conditions, investors continue to exchange property at a solid pace.
 
While many of our client’s primary motivation for buying and selling in today's market is 1031 exchanging deferral of taxes, we see many other motivating factors come into play.  For example, a few ‘non tax’ reasons investors decided to exchange included:
 
Lifestyle changes
Many of our clients choose to exchange out of management intensive properties and into properties that require less hands on management.  As a result, we see many clients exchanging out of several small properties and into one large property to consolidate the ownership benefits and reduce their management responsibilities. 
 
Another popular lifestyle move is to exchange out of actively managed properties and into 3rd party managed properties.  For many clients this was accomplished by selling one or more single family rentals and exchanging into NNN leased properties or fractional ownership of a large institutional property via Tenant In Common (TIC) ownership.
 
One interesting 1031 Exchange done purely for a ‘lifestyle’ reason was our client who happened to be a retiring attorney.  He sold the office building that housed his law firm and exchanged into a 10 room Victorian.  His goal for the Victorian: create a bed and breakfast that he and his wife could manage during their retirement.
 
Portfolio Reallocation
Of course not all of our 1031 Exchange clients are looking for lifestyle changes. We also work with aggressive investors acting to improve the position of their real estate portfolios.  Some of the changes these investors made included:

• Exchanging out of a fully depreciated property into a higher value property in order to increase depreciation deductions.
  
• Exchanging from non-income producing land into a positive cash flow single family rental.
  
• Exchanging out of property that could not be refinanced (vacant land) and into an tenant occupied property that could be refinanced.
  
• Exchanging out of a low or negative cash flow property and into foreclosed single family homes that when rented produce positive cash flow.
  
• Exchanging out of property located out of state and into property located near the investor’s home town.
   
  It is true that the real estate market has changed significantly and we can probably expect more unchartered waters ahead.  However, there will always be real estate investors looking to exchange regardless of market conditions.