The 411 on 1031 Exchanges | Part 2
By Shelley Swearingen | August 24, 2020
In our last installment, we gave an overview to 1031 Exchange Real Estate purchases. In this piece, we’ll discuss why an investor would invest in farmland, wooded properties, or developmental/transitional land.
The real estate market is more stable than stocks, and it’s easier to predict how a regional market will perform. When people think of real estate investing, they typically think of brick and mortar homes. HGTV has made a name for themselves by featuring multiple shows highlighting real estate developers that ‘flip’ homes. However, this is not the only way to increase your financial means through real estate. There’s another option that includes far less headaches than remodeling a home.
But first, an investor must always figure out the desired result….
1031 Exchange real estate purchases are a great way to meet ALL of these goals. Purchasing farmland, vacant land for development, or wooded properties is a much simpler way to diversify a financial portfolio and increase profits. These kinds of real estate are less prone to drastic fluctuations that you may see in a housing market. If farmland has been productive in recent history it’s same to assume it will remain so for the foreseeable future.
By purchasing a parcel of land, and renting it out to a farm tenant it ensures the land will be worked and remain fruitful. After a period of time and appreciation, the owner may sell this land and acquire more acreage using the funds from the previous sale in a 1031-exchange. This purchase will be exempt from taxes and allow for all the money gained to remain within the investment. An investor may repeat this process as many times as they desire – so long as the properties remain in the same name (either individual or entity).
It’s important to note that this method of investing is not a recommendation to ‘get rich quick’. This process takes time and patience but is ultimately much safer than playing the stock market.
If you’re interested in reviewing farmland investments for a 1031 Exchange purchase, land real estate is an attractive, long-term investment that preserves wealth and capital. Capital gains tax considerations should be investigated by your accountant and you should seek their advice.
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Identify Needs & Goals
-Save money for retirement -- Preparing now ensures you’ll be able to fully enjoy your golden years
-Pay for college -- Investing in your loved ones’ futures often requires planning early.
-Diversify portfolio -- Sinking all your funds into one option is not always the safest bet.
-Increase low-risk investments -- You may sleep more soundly knowing your assets aren’t at the mercy of the stock market.
-Create funds for heirs -- Many desire to leave a legacy and create trust fund for children and grandchildren.
-Generate an income stream -- Renting land to tenants can supply additional income.