Owners of Commercial Real Estate : How a 1031 Exchange Can Grow Your Portfolio
Introduction
Building wealth in real estate isn’t just about buying and selling properties—it’s about keeping more of your profits working for you.
A 1031 Exchange helps you do exactly that. By deferring capital gains taxes, investors can continually reinvest their profits into bigger and better properties without taking a tax hit.
Let’s look at how a 1031 Exchange can help you grow your portfolio faster and smarter.
Why Paying Capital Gains Taxes Slows You Down
Every time you sell a property for a profit, the IRS expects a cut. Depending on your state and tax bracket, capital gains taxes can take away 20-30% of your profits.
Example:
You sell a property for $400,000 that you originally bought for $250,000.
Your taxable gain is $150,000.
You could owe $30,000 - $45,000 in taxes.
That’s money you could have reinvested into another property.
How a 1031 Exchange Speeds Up Growth
A 1031 Exchange allows you to defer taxes and reinvest 100% of your sale proceeds into a new property. Here’s why that matters:
You keep more money working for you instead of losing 20-30% to taxes.
You can trade up to bigger properties, upgrading from a small rental to a multi-unit building.
You can buy in better markets by reallocating funds to high-demand areas.
You can diversify by moving from residential to commercial properties, increasing cash flow.
Real Example: Using a 1031 Exchange to Scale Faster
Let’s say an investor, John, starts with a $250,000 rental property. Over five years, it appreciates to $400,000.
If he sells without a 1031 Exchange: He pays $40,000+ in taxes and is left with $360,000 to reinvest.
If he uses a 1031 Exchange: He defers all taxes and reinvests the full $400,000 into a larger apartment complex that generates higher cash flow.
By repeating this process every few years, John scales his real estate holdings much faster.
How to Use a 1031 Exchange for Portfolio Growth
If you want to maximize your investments, follow these smart strategies:
Start with smaller properties and trade up to larger ones.
Sell properties in slow-growth areas and buy in high-demand cities.
Exchange low-rent properties for higher-income commercial assets.
Swap residential for mixed-use or commercial properties to diversify your portfolio.
Final Thoughts: Why You Should Consider a 1031 Exchange
If you’re serious about growing your real estate portfolio, a 1031 Exchange is one of the best tools available.
By deferring capital gains taxes, you can reinvest more money, scale up faster, and increase your cash flow—without taking unnecessary tax losses.
Thinking about using a 1031 Exchange for your next investment? Contact us today to learn more!