After my last blog post, I received numerous questions asking for an example of how the 1031 exchange can be useful to trade up to another property and maximize on the gain. For this example, I used a client that had recently traded up from a five-unit property and turned it into a $2.67M mix-use building.  

 

The original building was bought in 2015 for $475,000.  Yes, sometimes you need to get lucky in the market and find a property at the right price at the right time for some of these situations to happen.  Again, the longer you are in the real estate game, the more often these situations are going to present themselves to you.

 

After identifying the property, this client put this five unit property on the market and was able to sell it for $872,500.  

 

Bought:           $475,000

Sold:                $872,000

 

1031 Breakdown:

 

Proceeds from Sale on X property:              $182,113.80

Exchange Fee (Less):                                       $1,200.00

Wire Fee- Proceeds Received (less):            $25.00

Additional Proceeds (Down Dep) (Add)      $18,250.00

Exchange Fee (Less):                                       $350.00

Wire Fee: (Less):                                              $25.00

 

1031 Proceeds Exchanged                              $198,763.80

into new property: 

 

Using the 1031 exchange here, this client was able to save/utilize an estimated $36,422.76 and use it in the down payment of the new building of 2.67M.  If the client decided not to use the 1031 exchange, that money would have been taxed and paid, causing my client to come up with the other $36,422.76 out of pocket.  

 

For more information or questions, please reach out to nick@herricklutts.com