1031 Exchanges: The Best Farm Tool for Today’s Real Estate Agent

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The golden years of the last bullish real estate market witnessed a boom in investors taking advantage of the incredible wealth building tool of the 1031 exchange. In 2005 alone, over 500,000 1031 exchanges were performed by knowledgeable investors and, quite literally, several billion dollars in taxes were deferred and allowed to grow in those investors’ portfolios – triggering a massive increase in wealth in the process, all courtesy of the rule of compound growth. But it’s what happened in 2008 and several years after that holds a key to continued wealth building for realtors and investors alike. By 2008, when the bubble had busted, 1031 exchanges plummeted to their lowest point since the 1990s. In 2008, only about 100,000 exchanges occurred.

What does this mean? There is a whole nation of realtors and investors that need to reintroduce themselves to the wealth building power of the 1031 exchange. Estimates of realtor turnover for the last seven years has run as high as 75%. The largest real estate buying demographic today is the Young Millennials, or Gen Y buyers. In 2005, these buyers were either in school or in their early work careers and most missed out on buying opportunities. The upshot is that there is a whole generation of investors that have not heard about 1031 exchanges and what they can do to build their real estate wealth.

Savvy realtors will increasingly introduce their clients and potential clients to what 1031 exchanges can do for them. One of the most common tools that realtors are using to build their business is the practice of farming – spending concentrated time and effort in one geographical area that is large enough to provide quantity of business, but small enough that the realtor can become an expert in that area. But what if realtors started thinking of farming in terms of demographics rather than geographics? Only about 3% of all non-owner occupied real estate transactions that could possibly be done as 1031 exchanges actually are. That leaves 97% of a multi-billion dollar market available to the realtor who wants to spend the effort to introduce and educate a new generation of investors to the possibilities found in 1031 exchanges.

Everyone benefits from 1031 exchanges. Investors defer taxes and have more to invest. Realtors enjoy more transactions and gain stature and reputation as go-to realtors. You’ll know you’re talking to the right audience if you hear the words, “Can I really do that?”

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