Do you want to make more money this year? Let me tell you about the best kept secret in real estate - the 1031 tax deferred exchange.

Let’s start with the basics. A 1031 tax deferred exchange enables a seller of investment real estate to exchange his existing property for a like replacement property and defer any capital gain and depreciation recapture. More than that, by acquiring an income producing replacement property, the investor is actually generating income off of money he would have otherwise paid to the IRS! This is a great concept and one that sells itself to most sellers.

Okay, now that you know what a 1031 exchange is. Now learn to use the concept to generate more income as easy as 1-2-3:

Review your current listing inventory.

For every listing that is a non-owner occupied property, you should contact your seller to discuss the option of a 1031 exchange. Ask them what they plan to do with the proceeds and if they’ve talked to their accountant about what their tax liability will be upon the sale. Don’t panic if they haven’t heard of the concept-you are not in this alone. Just tell your seller’s you will get them information for their review. Remember, you don’t have to be the expert-you just have to get them to the expert. You are starting the process of familiarizing them with the basic concepts and to get them thinking about their future plans. When you get an offer and the property, you will talk to them again about their future plans and tax liability. The key to success is to remember that even if they are looking for cash, it may to their advantage to exchange into a replacement property that generates income or can be refinanced for cash.

Market investors for listing inventory using the 1031 tax deferred exchange as a “hook.”

Ask them if they want to sell their property and defer the taxes. Tell them you can show them how to make income on someone else’s money. Again, you are the property and marketing expert. You will guide them to the exchange expert.

Advertise for buyer’s who are using 1031 money to acquire replacement property.

What is most important to these buyers is an agent who knows the market, is responsive, and can negotiate their best deal. Remember they have a limited time to complete their transaction and they need you to get them the best deal in the shortest amount of time.

Steps 1 and 2 will bring you more business since you will be the seller’s agent when he goes into the market to purchase his replacement property. If they are acquiring property in another area-you have an opportunity to refer the deal and create both referral income and a new referral relationship. Step 3 brings you into contact with highly motivated buyers who will refer you to their friends. Combine all three steps into a yearlong marketing program and you will increase your income.

The key to success is working with an exchange professional that will support your marketing efforts and provide the information necessary for the seller’s successful transaction. Qualified Intermediaries are there to be your partner in the successful exchange and since the 1031 regulations are federal, the Qualified Intermediary can work with your sellers and buyers in any state. They are able to provide guidance and insight in structuring the exchange to meet the client’s ultimate goals.

Now that you know the 3 steps to increasing your income this year put together your marketing plan and go to work! Oh, by the way, let’s keep it our little secret.

Published: June 5, 2000

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