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Types of Properties for 1031 Exchanges FL

Types of Properties for 1031 Exchanges

Types of Properties for 1031 Exchanges
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Types of Properties for 1031 Exchanges in and near Florida

Types of Properties for 1031 Exchanges

We often receive calls from clients asking if their property qualifies for a 1031 exchange. Section 1031 means the exchange of like-kind, or the same type of, property.

In a 1031 property exchange, like-kind refers to property that is being held for investment, or income producing. Land, for example, is always considered an investment which the IRS will not question. Another example would be a commercial property, such as an office building or owning a retail space.

One questions we always ask our clients when determining if they qualify for and exchange is if the property they are selling and the property they are buying income producing? For example, a home that they have rented out a few months each year would be income producing, because they are making income in the form of rent. A second home that is only used by you and your family, and never rented out, would not be considered investment property in terms of a 1031 exchange because there is no income coming in from it.

It's important to note here that properties sold or purchased with the intent of a “fix and flip,” are frowned upon when doing a 1031 exchange. These properties typically show short-term gain, and are not considered income producing if not rented out. For these reasons, if an investor chooses to use these in a 1031 exchange, they may end up in a situation with the IRS that they really don't want to be in.

Below, you can find different types of properties that we often see when assisting clients in a 1031 Exchange. These types of properties would be considered held as investment when selling investment property in a 1031 Exchange:   

Single Family comprises houses, condominiums, townhomes, coop’s and the like. They are considered dwelling units that lend themselves to personal use. In order to meet 1031 exchange guidelines, you must show rental activity and hold a minimum of a year or two on this type of property to qualify as investment.

Multi Family residential properties such as apartment complexes are highly sought after by investors, including real estate holding companies, pension funds, partnerships and joint ventures. Managed efficiently, they have attractive cash flow and potential for appreciation over the long term.

Commercial office buildings are for the veterans in the real estate industry. Changes in economy, property management efficiency, insurance and legal challenges, zoning changes, air rights, and more come full force. Experience coupled with ability to hold for the long run usually bears fruit for the astute commercial office property investor.

Warehouses are desirable 1031 exchange properties for the investor looking for single user credit worthy tenants.

Single and Multi-Tenant Retail can be risky investments in down economic environments or if the tenant has a dying product line (i.e. Blockbuster), as per our exchangers experience these past few years. Look for thorough marketing data such as verifiable traffic counts, steady franchise sales, and competitor analysis to support such a purchase. However, in robust economy or a geographically strong market, the CAP rates are among the highest in commercial real estate.

Marinas are specialty commercial assets that may work well in tourist, fishing and cargo shipping environments. Deed restrictions arise due to government leases in place that are tied to a specific term. Land vs. water boundaries make it a challenge to substantiate title to deeds, and can trip rule #5 in an exchange, i.e. proper title holding requirements of a 1031 exchange.

Self-storage facilities have grown significantly as strong investments in recent years for 1031 exchangers. Managed well, these properties could provide decent cash flow and potential for appreciation with minimal property management required.

Oil and gas properties are risky investments for obvious reasons. Although highly speculative, their returns can be attractive if a well hits oil or gas reserves. The promoters of these investments structure them in sophisticated lease arrangements to qualify for 1031 exchanges. As with all these types of investment properties, read the prospectus carefully and seek the advice of an attorney well versed in the oil and gas industry before identifying one of these for your 1031 exchange. 

Hotels are most likely privately held investments that have unique accounting standards. Opportunities exist in emerging markets sought by 1031 investors, as primary market hotel properties require longer term holding periods to justify current asking prices.

Types of Properties for 1031 Exchanges FL

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