CONSIDER A 1031 EXCHANGE
If your rental property needs some work, rents low, or you have depreciated the asset to zero, it may be time to upgrade the asset to a rental property that fits your estate plans. Many investors are upgrading their existing rental properties into out-of-state investments. Many owners are exchanging into states that do not have state tax, or into areas where they want to retire. Generally speaking, out-of-state properties tend to yield a better return on the investment(s).
A client recently sold a long-held property in Long Beach and exchanged it into a brand-new Jiffy Lube, located in Las Vegas. The benefit is that Jiffy Lube (lease signed and backed by Valvoline Oil), is a triple net lease. That means the tenants pay everything, including maintenance, taxes, and insurance. It offers an initial six percent return, with fixed increases for the next 20 years. The buyer still owns the land, resets the depreciation schedule and will be state-tax free when he moves to Nevada, which will mean at least a 12 percent increase in income. This exchange is a “tune-up” for the investment that will also free up his children and grandchildren from the responsibility of maintaining a residential rental property to merely collect a monthly check.
A 1031 exchange is a tax move that is complicated – and you must strictly adhere to the rules and time frames. There are many types of tax deferred exchange options. Your qualified professional realtor may be able to provide the means for you to retire early, or at least make your investments yield more return. For more information about a 1031 tax deferred exchange or a no-obligation review of your real estate investments, consult The Sully Group.