One of the many reasons there aren’t many duplexes, triplexes or apartment buildings for buyers to purchase is a lack of places for would-be sellers to move their money.
Thanks to so many investment property owners being upside down for so many years on their properties, it’s been a long time since we’ve talked about what’s known as a “like kind”, 1031 or Starker Exchange.
Simply put, a 1031 Exchange is a way for property owners to defer capital gains tax by adhering to a set of relatively easy IRS rules and reinvesting in another property.
Many duplex sellers have misconceptions about this process. Some believe they must buy a building with an equal number of units to the one they’re selling. Other think if they’re selling a multifamily property, they must replace it with a multifamily property.
Seeing what they believe are few opportunities to purchase property, these people simply choose not to sell.
The facts are, however, there are plenty of great properties to invest in; if they just know the rules.
First, “like kind” does not mean multifamily housing must be exchanged for multifamily housing. A duplex seller, for example, can reinvest her profits in a retail center, a mixed-use building, an office building, industrial warehouse or, even land.
And since this exchange is possible, the number of units one exchanges for is also irrelevant.
While the economy is still in recovery mode, it’s important to remember it isn’t just the housing rental market that’s improving. Other sectors are starting to get on their feet as well, and the return on your investment may be greater, thanks to less competition for the “good deals”.
If you need a referral to a Realtor to help you explore other investment opportunities, I’d be glad to guide you to a competent professional.