Where to Find a 1031 Exchange Property

Where to Find a 1031 Exchange Property

When it comes to selling real estate investments, a 1031 property exchange is your best friend. 

A 1031 Exchange eases the burden of paying taxes on your capital gains by allowing you to sell the property, use the funds to acquire a new one, and essentially shift all of your tax liability to the new property.

In this real estate investment strategy, when you close on the sale of your  income property, you have an identification window of  45 calendar days to find  a  replacement property  that would  complete the 1031 Exchange process.

You may identify up to three replacement properties and acquire any or all of those three, or you may identify any number of replacement properties you want as long as the total market value does not exceed 200% of the value of the property or properties you sold as part of the exchange.

If you are wondering where to look for 1031 exchange properties, Orange County is your best bet. 

Why Complete a 1031 Exchange in Orange County?

Demographics

Orange County, located in Los Angeles metropolitan area in southern California, is a popular location for renters. Between a high cost of living and an intrigue for a coastal way of life, it’s no surprise that renters outnumber homeowners in some Orange County cities. 

Location

In the 34 incorporated cities under the county, there are older neighborhoods  that have original  homes  dating back to the 19th century - this is a goldmine for fix & flip enthusiasts, or buy-and-hold investors who are willing to put a little sweat equity into a project to get it rent-ready. Some areas like Fullerton, Orange, and Garden Grove have a selection of multi-family opportunities that tout promising cap-rates.hile in other areas, there are newer commercial developments, opening up an array of opportunities for all types of real estate investors. 

Cost of Living

The cost of living index for Orange County is 140.6, making it just a little more expensive than Boston, which has scores 139.9 in the index. This is because real estate home prices in Orange County are quite high comparatively to other areas of the country, with an average home cost of $682,703. Real estate investors who use creative financing methods are smart to take advantage of the large rental market.making it the best suit for 1031 exchange property investment, although other expenses, such as groceries, etc. are cheaper than anywhere else.

Appreciation

This is the entire reason that you 1031 exchange. You have a major gain that if you were to sell the property without an exchange, you’d pay tax on the entire gain. With a 1031, you are deferring that tax to some future date, typically when you sell the upleg property that you have exchanged into. However, since you can 1031 over and over again, some people literally NEVER pay the deferred tax, as they pass on the final property to their children and the children get a step up in basis. In other words, upon the death of the real estate owner, the new “value” of the property becomes the current market value. If the children of the real estate investor (assuming they were good children) inherited the property at the parents’ death, then if the children sell that property the very next day, there is NO tax due.

Identifying 1031 Exchange Property in Orange County

In Orange County, there are tons of possibilities when it comes to identifying potential replacement properties. The golden rule for identifying your replacement property is it must be like-kind. An exchange is “like-kind” if your property is being used as an investment or for income-producing purposes, and you replace it with another investment or income-producing property. Real property is generally considered to be of “like-kind” regardless of whether the properties are improved or unimproved, and doesn’t necessarily mean a house for a house.

For example, you may sell a residential duplex and buy a small office complex, or you could sell a warehouse property and opt for a number of single-family rental properties to replace it.

For possible sources of 1031 exchange properties to consider, your local multiple listing service (MLS) database is a good place to start. 

You may also try out 1031 specialty platforms like 1031gateway.com and 1031crowdfunding.com, or real estate websites, such as LoopNet, etc. as well.

Let your realtor know what you are specifically looking for. This will enable them to narrow down the list of potential identification properties for you.

Also, commercial real estate brokers generally have extensive experience with 1031 exchanges, so they can be a good source of property ideas.

Finding a 1031 Exchange Realtor

Since you can find anything online, a 1031 realtor is no exception. A simple Google search of “1031 exchange orange county” will land you to hundreds of ads on property exchanges or blogs on 1031 exchange properties. Take heed - not all realtors are created equal, particularly when it comes to protecting your investment. Make sure you choose one that uses correct documentation and disclosure forms for 1031 exchanges, and has references of past clients they have previously worked with on successful deals.

Since your money is on the line and your 1031 property exchange falls within a strict timeline, it is wise to consult with an experienced realtor who would guide you through the steps to complete those timely and successfully close the deal.

 

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