The 1031 Exchange: Trend or Here to Stay?

The 1031 Exchange: Trend or Here to Stay?

When it comes to your investing pursuits, your sights are firmly set on longevity— or staying power. In fact, that’s the reason you chose real estate over the other alternatives, like the stock market. The flexibility that comes with processes like the 1031 Exchange only re-enforces the belief that real estate investing is your own personal path to prosperity.

But are these investor-friendly options a mere flash in the pan designed to spike interest, or are they here to stay? After all, we’re talking about your hard-earned money here, so you’d like some certainty! So let’s explore the staying power of the 1031 Exchange.

Why 1031 Exchanges Are a Long-Term Investing Solution

1. The NAR Element: There’s a very powerful element behind the 1031 Exchange’s success: the National Association of Realtors (or NAR). Consider that the NAR is America’s largest trade association (at over 1.1 million members) and maintains a heavy Washington lobbying presence. These facts allow any doubts regarding the 1031 Exchange’s staying power to dissipate. In other words, because the 1031 Exchange is in the interest of its members, the NAR is interested in seeing it succeed! And in 2016, $45.2 million of their money was invested in making sure that options like the 1031 Exchange would continue to be present within the U.S. tax code.

2. 96 Years And Counting. Does a process that’s been around for about 100 years sound like a trend? Consider that the original 1031 Exchange was legislated into law with the Revenue Act, way back in 1921! The investor favorite was based on the premise that: “a property owner who re-invests his/her sale proceeds and retired debt into a like-kind replacement property has an economic position that has not changed.” It’s been helping investors dump their failing assets and expand their portfolios with more promising properties ever since.

3. $3.2 Billion (With a “B”)! Lest you think that either the presence or profitability of the 1031 Exchange option is waning, consider the following: The estimated value of total taxes deferred from the 1031 Exchange— in 2012 alone— was $3.2 billion.

4. The Anti-Stock. Unlike stocks, 1031 Exchange’s aren’t a “hot” option that stays hot only as long as a given product does. This is an important distinction, because as the popularity (and sales) of a product can fade, so can the value of its stock. Take the case of Skull Candy (or SKUL)— a trendy brand that was on the rise a few ago— only to see its stock drop by 52% over the course of a few months. A 1031 Exchange, on the other hand, holds its value year round, each time you go to perform it. In this sense then, you can say that it’s the anti-stock.

5. It’s Not Going Anywhere! Despite the usual rumors and D.C. intrigue, there’s no hard evidence to suggest that the 1031 Exchange is going away. In fact, eliminating its provision in the tax code would only hurt the real estate market. This, combined with the fact that we have a decidedly real estate-centric president means that the 1031 Exchange is likely to be a viable option for investors for years to come.

In summary:  The 1031 Option is perfect for the aging of America.  The management of the multi-family or the multi-tenant retail is very management intensive.  Is this something that you will want to hand over to your children?  The Triple Net 1031 is a way to keep real estate without the tax burden or the management headache.


 For more information, contact Doug Shea, INCO Commercial.