1031 Tax Deferred Exchanges: Two for One Strategy
My husband was on the Big Island of Hawaii one Valentine’s day after I had just begun my new career in real estate. Mind you, I was not with him, as I was too and he was accompanying a friend who thought it would be a last trip. He was anxious about not being with me on that romantic day, and asked what he could bring back. Tongue in cheek, I suggested a grant deed.
I was showing property in northern California, a small lot with an ocean view, and also a view of the power plant and freeway–asking price, $150,000. While at the showing, my phone rang and it was my husband. I excused myself from my client, (I only answer for family) and listened to my husband on the other end.
He was excited about the lot for sale that he was standing on, 180* ocean view, and only $50,000. I suggested he not hesitate and just make an offer. I had never been to Hawaii myself, but this seemed like a great opportunity.
We made the deal with a small amount down and seller financing. A year later, I finally got to see our lot in paradise.
Except when I drove there, the road was so steep and it was far from town services, and I had a bad image of being a little old lady and driving over the edge just to get home. Building was going to be a challenge, and the boom in real estate was just taking off.
We wanted to sell. Our little $50,000 lot was now worth double, and I never even lifted a pebble. If we just sold it, we would owe taxes. A lot of taxes, and I didn’t want to lose that gain. SO we exchanged it!
Able to invest 100% of the gain into our next endeavor was fabulous. This was more money than I had ever seen, and I was able to use it as a down payment for a much more lucrative property that actually earned money to pay the mortgage.
Since then we have been able to leverage out our exchanges with a simple rule, when we sell one, we buy two, always using the tax advantage of 1031 exchanges. Read more about 1031 Exchanges