1031 Exchange Analysis
There are a variety of reasons investors consider a 1031 Exchange. Strategic factors such as a desired change in property location, increase in cash flow, change in product type, etc., can all fuel the motivation for a 1031 exchange. Additionally, variables in lifestyle can lead an investor to consider a difference in their portfolio. For example, decreasing property management volume, dissolution of partnerships, and changes in risk tolerance or investor profile changes could all prompt consideration of a 1031 exchange. For our clients, we stay involved in the 1031 exchange process from the first thought of trade until well after the discussion up leg has closed. Therefore, the first step in our approach is to provide a 1031 exchange analysis to our clients to evaluate how this change could affect their portfolios. If you have any questions about your portfolio's status or position, please get in touch with us today for a free comprehensive analysis and discussion of the following.
Exchange Down Leg Analysis
Before starting an exchange analysis, we ask our clients which elements of their current property they admire and which parts they want to change. After we fully understand the property’s background, we can assess if any steps can be taken to improve our client’s current property to potentially generate the changes our clients seek through a 1031 exchange. Creating a multiple-scenario approach gives our clients an encompassing view of all available options. Of course, a business is not always the best approach, but with the correct steps, changes can often be made to an investor’s current holding to cater to their desires. This question is precisely what we seek to analyze in our analysis of our client’s potential down leg.
Exchange Up Leg Analysis
After evaluating our client’s current property to assess the possible changes, improvements, and possibilities available, the next step in our process is to analyze the up-leg opportunities available for our clients. With our experience and relationships in the local marketplace, we have access to potential opportunities that are not currently, or will soon be, on the open market. Therefore, we can cast a wide net into properties that match our client’s purchase criteria. Additionally, we analyze the current owner of the potential up leg, availability of financing, market trends, and any upcoming legislation that could affect their investment. Property location is also a significant variable, and if our clients consider a change of area, we will clearly distinguish the differences between the two regions.
Exchange Cash Flow Analysis
The last and possibly most crucial step in our process is our analysis of the up-leg property financials compared to our client’s current property financials. Various factors can affect the bottom-line cash flow comparison of the properties, such as available financing, gross income, expenses, deferred maintenance, etc. We provide our client with a comprehensive analysis evaluating many vital variables and ultimately conveying the differences between the properties. Often, if an investor has over 50% equity in their current property, there is potential to increase cash flow through a 1031 exchange.
Tax and Legal Advice Disclaimer
LFA Multifamily does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on, for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.