In 2005 you paid $620,000 for a 3-family home. That 3-family home now grosses $7,500/month with a net of $3,400./month after expenses.
You can now sell that 3-family home for $1,500,000. To make things simple, we will exclude some other tax benefits; such depreciation and expenses. We are going to assume you did not reside there and it was purely an investment property. Your taxable gain would be:
$880,000 x 40% = $352,000. in taxes
1031 Exchange does not prevent taxation, but is a vehicle allowing you to take advantage of off-setting your TAXABLE income over time.
Instead of only having $528,000 to re-invest, you will use a 1031 Fiduciary to apply the entire $880,000 to a new purchase of 'Like Kind' (another investment property).
Example of a Target property:
If that property is a $3,000,000. 12-unit residential property bringing in $25,000/month; you have placed $880,000 deposit to finance the remaining $2,120,000. That loan plus property expenses will cost you approximately $18,000/month. Now there is a $7,000 cash flow compared to your previous $3,400/month. You have now gained $3,600/month cash flow.
[Note: expenses include the $352,000. in taxes paid off over time against the current income. Once this is paid down (~5 years), cash flow will increase by ~$6,000 to $13,000+/month, not including your regular rental increases from lease renewals.]
AND THAT is why 1031 Exchange is a great thing!!
If you are growing tired of being a residential landlord, let us show you how Commercial Property can save your days. In simplest terms: if a meteor goes thru the roof, THEY fix it. [THEY = Tenants]
For a more personal assessment of your position, please contact an agent at 617-868-8500 or Agent@AlcoveRealty.com.
