One of the primary drawbacks to investing in real estate is that this type of investment requires a rather substantial upfront financial commitment. Consequently, it is quite common for people to start by investing in lower-end properties. The good news is, it is possible to upgrade your buying power and your personal wealth without investing additional money out of your own pocket. This is made possible through the use of rental property 1031 tax delayed exchanges. Continue reading to learn more about how you can put these tax delayed exchanges to work for you to grow your real estate investment.
1. Increasing Your Buying Power
Rental property 1031 tax delayed exchanges offer you the ability to increase your buying power by allowing you to delay paying income and capital gain taxes when choosing to sell one of your rental properties to purchase a new property. This means that you can take all of the proceeds from your real estate sale and reinvest them in a new rental property. Consequently, you will have more money to spend on your purchase without the need to invest more money. This is one of the greatest benefits that a 1031 rental property tax exchange has to offer.
2. Increasing Your Wealth
Low-end rental properties may cost less upfront, but they also demand a lower rent each month. Consequently, the income that you can expect from these properties each month will be rather limited. When you use a rental property 1031 tax delayed exchange, you will be able to afford a higher-end property without increasing your initial investment. These higher-end properties will command a higher monthly rent and therefore increase the amount of passive income you receive from your real estate investments. This is a great way to build your wealth or net worth in a relatively short period of time.
When utilizing 1031 tax delayed exchanges to help increase your buying power and grow your personal wealth, it is important to ensure you meet all the requirements set forth under the IRS tax code that makes these tax deferments possible. To ensure all of these requirements are met, it is best to work with a professional tax service or tax attorney to execute your rental property tax exchange.
This is just a brief look at your options. If you would like to learn more about rental property 1031 tax delayed exchanges, reach out to local tax services.
