The benefits of section 1031 tax deferred exchanges are as follows:
Leverage- The benefit of 1031 exchange is that it provides leverage to the tax payer. In 1031 exchange the profit received from the sale of relinquished property can be used to buy a new replacement property, the investor also has a option of buying a more valuable property by investing more money into it.
Diversification- Under 1031 exchange the investor also has the benefit of diversifying the property, the investor or the taxpayer has the liberty of buying one or more replacement properties anywhere across all 50 states of the USA. Like the property in Los Angeles can be exchanged for a property in California. This can also be advantageous as buying a property at a more developed location can boost income.
Management Relief – 1031 exchange provides you the benefit of managing the properties. Suppose if you own a rental property then you need to pay high maintenance cost regularly. The best way to get rid of these unnecessary expenses is to switch to NNN lease Investment, as under this the tenant bear all wear and tear of the property. 1031 exchange can also be performed for single multi-family with a resident manager.
Increased Cash Flow – 1031 exchange allows the investor to exchange even a low quality land for improved property. By this a low quality land which was generating a zero value or no revenue, can be exchanged for a valuable property which in turn will increase the cash flow.