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7 Steps For A Successful 1031 Tax Deferred Exchange

A 1031 exchange is a tax-deferred exchange which allows an owner of business or investment property to exchange that property for new property without incurring income tax on the gain.

The 1031 Exchange Process

Prior to closing on the sale of the sold property:

Step 1: Consult with your tax advisor for a 1031 tax exchange

Step 2: The Agreement
Contact an 1031 exchange intermediary to reserve an account number to use on all the exchange documents. The owner of the property (“the Owner”) should complete both an Exchange Agreement and a Qualified Exchange Trust Agreement.

Step 3: Assigning the Sold Property Contract
The Owner assigns rights but not obligations under the Sale Contract to a Qualified Intermediary and provides notice of the assignment to the Buyer. At the closing, title for the sold property is transferred directly from the Owner to the Buyer (known as direct deeding). A copy of the completed Assignment of sold property Contract and a copy of the Sale Contract should be sent to your intermediary.

Step 4: Net Proceeds
Net proceeds from the sale must be payable to the Qualified Intermediary. Payment may be in the form of a check payable to them or a wire transfer. It is important that the Owner never have actual or constructive receipt of the funds from the sale. Once proceeds are received by them, they are invested for the benefit of the Owner.

Within 45 days following the sale and transfer of the sold property:

Step 5: Identifying Replacement Property
The Owner completes the Identification of Replacement Property form. Replacement property must be specifically and unambiguously identified. For real estate, this could be a valid street address or a legal description. Identification requirements for personal property may vary depending on the item, but make, model and year are usually sufficient. Delivery of the Notice to the intermediary may be by hand, fax, mail, or over-night courier and must be postmarked by or received by 11:59 p.m. on the 45th day. Prior to midnight on the 45th day, the Identification may be amended or revoked, but after the 45th day, no changes in the Identification will be accepted.

Within 180 days following the sale and transfer of the sold property:

Step 6: Assigning the Replacement Property Contract
The Owner assigns rights but not obligations under the Purchase Contract to the Qualified Intermediary and provides notice of the assignment to the Seller. A copy of the completed Assignment of Replacement Property Contract and a copy of the Purchase Contract should be sent to the intermediary.

Step 7: Disbursements
Owner sends a Direction to Disburse Funds from the Exchange Account. Funds are made payable to the Seller of the Replacement Property or to the Seller’s agent. At the closing, title to the replacement property is transferred directly from the Seller to the Owner (direct deeding).

You can always check out what the IRS says about 1031 Exchanges prior to entering into a 1031 Exchange.

Office: 480-213-5251

How To Create Massive Passive Income Without Hassling With A Single Tenant

The true goal of every investor should be to create as much massive passive income as soon as possible.

Passive income means just that, money that comes into your house month in/ month out without you having to do a thing to get it. How can you accumulate massive passive income quickly?

Well, if you went out and bought a couple dozen single family houses and kept them, you would create a decent income. Good but not great.

Its’ going to take you a little time to find all of these deals and then you would have to manage all of those tenants.

What If You Put a Couple Dozen Units in the Same Property?

Then you would only have to find one deal and then a few more to create a great passive income.

I know what you’re thinking. Oh no, not apartments! I don’t want to deal with the tenant hassles! And I agree with you, you shouldn’t be dealing with any tenants, wouldn’t it be better if you could just sit back and collect checks while someone else deals with all of the management headaches?

Those people are called management companies and they make a living shielding investors from the day to day management of their properties so you can go out and continue to do what you do best, find more property and create more cash flow!

But Aren’t They Expensive?

It’s true that management companies are paid a percentage of the gross collected rents, somewhere between 6% and 10%, though if you factor this cost into the deal, as long as the property cash flows with these fees, you’ve got yourself a winner!

Not only have you found a property that will get you one step closer to true freedom, you don’t have to hassle with a single tenant.

Office: 480-213-5251

Flipping Versus Holding – Which is Better?

Some investors focus on flipping—that is, turning properties over quickly, rather than keeping them long term. In some cases, holding property generates more long-term wealth for you than flipping. Therefore, you may consider flipping some properties and holding others. On the other hand, you may consider using the flipping strategy awhile, and then begin holding properties later. The big question is, “When should you hold versus when should you flip?”

The Advantages of Flipping

The main advantage of flipping is that you get your cash out immediately rather than later. Flipping in a competitive market will be like trying to drive up a 90 degree hill. If you are able to buy a property correctly, then you can receive a paycheck immediately but you will have to keep buying properties correctly to receive a consistent paycheck similar to a rental property.

The Advantages of Holding

Property holders can generate true wealth over the long term. Historically, property values appreciate at a rate greater than the rate of inflation in the United States. If you buy in the right neighborhoods, your annual appreciation may reach double digits. You can use properties with equity as collateral. You can provide rental income for your retirement years, and you can pass property down to the next generation. Once your rental properties are owned “free and clear,” you have passive income from rents paid that gives you an income even when you’re not working.

What’s Right for You?

The important question isn’t whether flipping is better or worse than holding, but which strategy is right for you. To discover the answer for yourself, ask these questions:

1) Do I need additional income now or in the future?

2) Am I in a high-income tax bracket that would be adversely affected by more income now?

3) Does my local real estate market present opportunities to acquire bargains, yet still command high rents that would cover my expenses if I need to hold on to the properties?

4) Do I have other income or savings that I could tap into in case my rental properties become vacant or need major repairs?

5) Is the local real estate market rising or falling at this time?

6) Does bringing in income now or later fit into my short-term and long-term financial goals?

Most investors start out flipping houses, and then gradually work into managing rental houses or becoming involved in larger, more complex real estate projects. Some people don’t have the temperament to deal with tenants and the headaches that come with rental properties. Some look for side income by flipping. Others want to quit their jobs and make flipping houses their full-time business.

As you can see, many investors were once in your shoes making these decisions. Be sure to consider all options, including a mixture of flipping and holding properties. Reevaluate your financial goals on a regular basis and adjust your real estate strategies to support these goals.

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