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1031 exchange, will allow me to do what the IRS calls buying new basis: the amount of property purchased by the loan can then start being depreciated immediately. If I sell a property for $1 million and leverage it at a moderate 50% to buy $2 million of property, I just bought $1,000,000 of this “new basis,” which gives me $29,090 of annual tax deferral for my income.
Leveraged properties can give us the opportunity to see greater appreciation, as well. If I buy a $1,000,000 property with cash and sell it for $2,000,000, I have doubled my money. If, on the other hand, I buy that property with a $500,000
Financial advisory
down payment and a $500,000 loan, I just turned $500,000 into $2 million – that’s four times my money. And what could my investment with the remaining $500,000 of equity done as well? Using leverage to compound our appreciation potential is what made us so successful in real estate over the years.
All investments involve balancing risks. How much return do you want, and how much risk do you want to take to get it? These questions should be carefully considered before making any investment. If you have any questions, my office phone number is (877) 313-1868.
Securities offered through Emerson Equity LLC, member FINRA/SIPC. Emerson Equity LLC and Specialized Wealth Management are not affiliated. All investing involves risk. Always discuss potential investments with your tax and/or investment professional prior to investing. The scenarios provided herein are provided as hypothetical illustrations of mathematical principals, only. They are not representative of all investment outcomes.
1031 Risk Disclosure:
· There is no guarantee that any strategy will be successful or achieve investment objectives;
· Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
· Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s
income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax
liabilities;
· Potential for foreclosure – All financed real estate investments have potential for foreclosure;
· Illiquidity – Because 1031 Exchanges are commonly offered through private placement offerings and are illiquid securities. There is
no secondary market for these investments.
· Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses
tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
· Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
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AMM1/6 APARTMENT MANAGEMENT MAGAZINE - JUNE 2021 73
