How To Use A 1031 Exchange To Acquire An Apartment Building?

Learn how a 1031 exchange can help you acquire an apartment building even if you don't have the cash. By selling your rental properties and investing directly into a syndication, you can invest in larger and potentially more profitable assets as a passive investor.

This may be your best option if you own rental properties or land and want to invest in apartment buildings. People may own rentals or land but don't have the cash to invest in apartment buildings, but this is a way to do it if you're comfortable being a Limited Partner or Passive Investor.

What Is A 1031 Exchange?

It's a tax break that allows you to sell a property you owned as an investment property or business and swap it for a property you intend to purchase for the same purpose as the original you sold.

During this process, the money from selling the original property must be held in an escrow account by a third-party company and then used to acquire the new property. You're not allowed to hold those funds at all.

For example, suppose you own a four-plex worth half a million dollars. In that case, you can use that to 1031 exchange into an apartment building worth exponentially more if you're comfortable being a passive investor. The alternative is doing the 1031 exchange into something smaller if you want to manage the property and have more control over the operations.

How You Can Invest In Apartment Buildings With This Strategy

When people are selling off all their rental properties, they often want to avoid dealing with the management side. I've heard numerous times how stressful that can be when managing a bunch of single-family properties. You can be invested in 100+ unit apartment buildings by selling your single-family portfolio and using the proceeds to invest directly into a syndication.

Let's say you have $500,000+ of equity right now in an investment property, that money can be placed into an Apartment Building worth around five million dollars as a passive investment where you no longer have to manage properties but you have quarterly cash flow that is greater than what you would have had just holding onto the property that had $500,000+ of equity.

This strategy works because you're using the proceeds from your investment property to invest in an investment property.

Conclusion

You're not limited to using a 1031 exchange to acquire something slightly greater than what you already own. You can use it to invest in larger and potentially more profitable assets if you're willing to be on the investment's limited partner or passive investor side.

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