Successfully investing in real estate is one of the most popular ways to acquire wealth. While many people are extremely successful when investing, others struggle to make smart and strategic choices. As a result, they may lose money in the process.
If you are an owner of real estate, and you want to start making smarter choices and investing wisely, you should make sure that you are taking advantage of all incentives at your disposal. One of the ways you can avoid income tax when investing is through a 1031 exchange. To benefit from this, you must reinvest the profits made from one property into a similar one within the required time period. The following are some of the possible outcomes that you could achieve by taking advantage of a 1031 exchange.
Purchase a vacation home
While it is not possible to acquire a vacation home directly through a 1031 exchange, it is possible to begin the journey toward doing so. If you reinvest capital gains into a rental property in the resort area of your choice, for example, you will be able to use it as a vacation property as long as you first rent it out for two years.
Increase your cash flow
You can engage in a 1031 exchange to strategically increase your return on investment. If you spot a new area where you believe that you can gain a higher rental price, a 1031 exchange will help you act quickly.
If you want to take your real estate investment activity to the next level, it is paramount that you are strategic in your approach.