1031 Exchange Compounding Benefits

Increased Buying Power

Deferring capital gains taxes gives investors more available capital for reinvestment. This increased buying power enables them to acquire higher-value properties, which could, in turn, facilitate portfolio growth.

Portfolio Diversification

An increase in buying power also supports portfolio diversification. Adding properties from different markets and asset classes can help to spread a portfolio’s risk and provide potential access to markets with higher rents. For example, an investor can exchange two duplexes for a medical center, or take advantage of a new growth area by exchanging one property in California for three properties in another state.

Wealth Accumulation

Larger, more diverse investment properties may allow investors the potential to generate more income and build net worth faster. The additional reinvestment capital available from a 1031 exchange compounds returns creating the potential for additional wealth accumulation.

Potential Cash Flow Enhancement

When comparing Schedule E revenue with 1031 exchanges investors have the opportunity to trade them for properties with better income-generating potential. This, in turn, could lead to improved cash flow.

Geographic Diversity and Diversification

With the flexibility of an exchange, an investor may exchange one property for several others, consolidate multiple properties into one, and acquire property anywhere within the United States.

Risk Mitigation

Diversifying real estate investments via a 1031 exchange allows investors to spread their risk across different types of properties, locations, or market segments. This strategy offers their portfolios better protection than the potential forces of a single property or market.