News & Research Archive

Lifestyle Exchanges and Exchanges for Portfolio Reallocation

Aug 09, 2011

Many people have asked lately, "how's the 1031 Exchange business?". Although volume is down as a result of the overall market conditions, investors continue to exchange property at a solid pace.
While many of our client's primary motivation for exchanging is the deferral of taxes, we see many other motivating factors come into play. For example, a few 'non tax' reasons investors decided to exchange included:
Lifestyle changes

Many of our clients choose to exchange out of management intensive properties and into properties that require less hands on management. As a result, we see many clients exchanging out of several small properties and into one large property to consolidate the ownership benefits and reduce their management responsibilities. 
Another popular lifestyle move is to exchange out of actively managed properties and into 3rd party managed properties. For many clients this was accomplished by selling one or more single family rentals and exchanging into NNN leased properties or fractional ownership of a large institutional property via Tenant In Common (TIC) ownership.
One interesting 1031 Exchange done purely for a 'lifestyle' reason was our client who happened to be a retiring attorney. He sold the office building that housed his law firm and exchanged into a 10 room Victorian. His goal for the Victorian: create a bed and breakfast that he and his wife could manage during their retirement.
Portfolio Reallocation

Of course not all of our 1031 Exchange clients are looking for lifestyle changes. We also work with aggressive investors acting to improve the position of their real estate portfolios. Some of the changes these investors made included:

  • Exchanging out of a fully depreciated property into a higher value property in order to increase depreciation deductions.
  • Exchanging from non-income producing land into a positive cash flow single family rental.
  • Exchanging out of property that could not be refinanced (vacant land) and into an tenant occupied property that could be refinanced.
  • Exchanging out of a low or negative cash flow property and into foreclosed single family homes that when rented produce positive cash flow.
  • Exchanging out of property located out of state and into property located near the investor's home town.

It is true that the real estate market has changed significantly and we can probably expect more unchartered waters ahead.  However, there will always be real estate investors looking to exchange regardless of market conditions. At Asset Exchange Company we look forward to working with those investors. We are always available for free consultations at 877.471.1031.


Written by: Leonard Spoto

Starboard TCN is posting this article on its website and blog with Leonard Spoto's approval.

Leonard Spoto is a frequent keynote speaker and an accredited course instructor on the subject of 1031 Tax Deferred Exchanges. He has presented his popular real estate and tax workshops to over 12,000 Realtors, lenders, title professionals and investors and is the author of dozens of published 1031 Exchange related articles.

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