1031 exchanges offer sponsors an opportunity to present attractive property investments that can subsequently be rolled over into larger investments, potentially contributing to the growth and diversification of investor portfolios.
The wording of Section 1031 of the Internal Revenue Code hinges upon the phrase, “like kind,” which describes the similarity between two properties involved in an exchange. While that may sound restrictive, when it comes to real estate, it can be interpreted quite broadly.
Outside of standard one-for-one exchanges, two legal structures, Delaware Statutory Trust (DST) and Tenants-In-Common (TIC) exchanges, allow investors to pool their funds to invest in a replacement property that would otherwise be out of reach to an individual investor.
1031 may seem like an attractive way to grow and diversify an investment portfolio, but not all exchanges are created equal. Just as with any investment, investors perform their own evaluation of an exchange’s value. We outline a few things investors look for.