1. The Exchanger will have more buying power because the federal income taxes are deferred. This will enable him to leverage himself up greater than he could have he paid the tax liability. The additional equity to reinvest will make him a more solid buyer and help him get easier financing.

2. Investors can do exchange after exchange to create a pyramiding effect. This tax liability is forgiven upon the death of the investor as the heirs get a stepped up basis on the inherited property.

3. The Exchanger will have greater selling power because he does not have to inflate the sales price to try to cover some of the capital gains that would normally be due upon the sale of an investment property. It will enable him to be more flexible with the selling price.

4. The Exchanger can acquire a replacement property with greater income potential. He can sell raw land and acquire income-producing property. Perhaps, he wants to acquire a building with additional units or in an easier to rent location.

5. The Exchanger has the opportunity to consolidate several hard to manage properties in one easy to manage property or diversify several small properties into one large property. It provides an excellent opportunity to relocate or expand a current business or investment.

6. An exchange can also help an investor acquire a less management intense property.

BESIDES TAX REDUCTION, 1031 EXCHANGES CAN ACCOMPLISH MANY INVESTMENT GOALS:

• Estate preservation
• Increased buying power because of greater cash flow
• Increased selling power because the federal capital gain tax liability is deferred
• Exchange for property with an increased income (more rental units, higher rental income per unit, lower operating expenses, easier to rent location, etc.)
• The need or desire to relocate a business or investment property
• Exchange for property that requires less management
• Exchange for property that is easier to finance
• Consolidate smaller properties into a larger property
• Diversify a large property into several smaller properties
• The need or desire to expand a business into a larger space

All of the above culminates into one significant power: the ability to create pyramiding wealth accumulation in real estate ownership.

SLIGHT DISADVANTAGE
The basis of your replacement property will be lowered by the amount of gain deferred on the sale of your relinquished property. However, when weighing this against the deferred gain, the astute investor can clearly see he is still significantly ahead.

THE PROPERTIES IN THE EXCHANGE
RELINQUISHED PROPERTY:
The relinquished property is the business use or investment property the Exchanger owns and wants to sell via the 1031 Exchange.

REPLACEMENT PROPERTY:
The replacement property is the business use or investment property the Exchanger wants to acquire to complete the 1031 Exchange.

There can be more than one of each of the relinquished and replacement properties. For example, an Exchanger can sell three small properties and purchase one large property or sell one large property and acquire four smaller ones.

An Exchanger does not have to purchase the same type of property. For example, he can sell a storage facility and acquire an apartment building or sell a raw piece of land and acquire a shopping center.

THE PARTIES INVOLVED IN THE EXCHANGE
EXCHANGER:
The Exchanger is the taxpayer who is electing to defer the capital gains by affecting a 1031 Exchange.

SELLER:
The seller is the person who owns the property the Exchanger wishes to acquire as a replacement property.

BUYER:
The buyer is the person who wants to purchase the property the Exchanger is selling

INTERMEDIARY:
The use of a qualified Intermediary is required by the regulations of Section 1031. The role of the Intermediary is to act as a middleman in both the sale and purchase transactions. We recommend working with:

Bayview Financial Exchange Services
Bayview 1031 focuses on facilitating 1031 exchanges of real estate property, with unparalleled quality, speed and competitive pricing.

First American Exchange