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1031 exchange. Has anyone actually done one?

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  • #16
    I have been a direct RE investor for decades. I am currently in the middle of my 1st 1031 exchange. It has been very easy so far.

    Cost is $695 to the 1031 agent. That is for a forward 1031. A reverse 1031 is $6,000!

    I’m selling our first investment property. I bought it as a resident. It was a decent investment, not great, not bad. We put 18k down and it cash flowed from day 1. The rent paid off the mortgage, we never cashed out. We just kept collecting rent. We have had 100% occupancy with no vacancy for the last 17 years. We have been earning tax protected cash flow, growing every year. The selling price is $315,000 with no realtor involved as the current tenant is buying it. The cost basis is extremely low because of all the years of depreciation. Between capital gains, depreciation recapture, Medicare investment tax, and state tax, we might owe around 90k in taxes on the sale. This 1st property was a learning experience for us.

    Instead of paying all those taxes, we are purchasing a 1031 replacement property that will yield a higher return despite the extra cost of professional management. We are working on simplifying our involvement with RE as we anticipate retirement and getting older, hence the shift to professional management. We currently self manage 3 other properties out of our current portfolio of around 100, with the others all having professional management. The sale is scheduled to close in early April and the replacement property just went under contract for a closing in late April. So far, easy. There was a simple, 1 page contract addendum for both the sold property and the same for the replacement property.

    The RE investments started us growing wealth slowly, but like most things with investing, the compounding becomes wickedly powerful with time. Our RE investments currently provide a generous 5-figure monthly profit and more than fully replace a generous physician level income. It isn’t fully passive, but in retirement will provide continuous income with only a few hours of remote worth each month. If and when the time is right, we are all set for Fat FIRE.

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    • #17
      100? properties?
      BTW -- you're not Fat FIRE

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      • #18
        Originally posted by StarTrekDoc View Post
        100? properties?
        BTW -- you're not Fat FIRE
        Yep, still working and getting older. So yes, FI, but the rest, RE, no way.

        Today, as I head to the mountains in the front of the plane as I type, I am thinking more and more about cutting back further. Despite that thought, I am on wifi doing work related stuff in between hanging out on the WCI forum. I read in The NY Times recently that in the COVID era, this is what is now referred to as a “workation”. ​​​​​​​

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        • #19
          Any suggestions for a resource for 1031s to a NNN as an end strategy?

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          • #20
            Originally posted by auggie1983 View Post
            Any suggestions for a resource for 1031s to a NNN as an end strategy?
            What are you looking for? A book? Help? Your best bet is to work with a good CRE broker. Don't call a residential guy, or a res guy who pretends to sell CRE as well. A good CRE broker can walk you through the process, help you figure what type of property you should roll into, help you identify and underwrite said property, and facilitate the transaction including helping you source any third party service providers you may need.

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