Why Would an Investor Use a 1031 Exchange? The Million Dollar Difference скачать в хорошем качестве

Why Would an Investor Use a 1031 Exchange? The Million Dollar Difference

Ready to use the government's money to make money for yourself? Visit the1031investor.com to harness the power of the 1031 Exchange. ===== TRANSCRIPT Let's look at two investors, Investor A and Investor B. Now they're going to start with the exact same piece of property. They're going to do everything exactly the same: they're going to sell at the same time, buy the same amount of property that they can. But, one’s going to pay taxes every time he sells his real estate (Investor B). He's going to be the good little soldier that volunteers to pay his taxes because, he owes them. The other investor (Investor A) is going to take advantage of the tax avoidance that's available to him through section 1031. He's not going to pay his taxes - although, the taxes remain due. But they're not payable throughout his (1031 Exchange) career. And, let's see what's going to happen. So, the first time they sell a piece of property, let's just say that they're each going to make a hundred thousand dollars on it. Not a bad payday. Investor B is going to pay tax on that money. So, if his federal rate plus his state rate is 20% he's going to write a cheque to the government for $20,000, he still made $80,000. That's a nice day's work. Investor A, on the other hand, says, “I want to do a 1031 Exchange. So, rather than simply pay the tax and be free to do what I want, I'm going to sell my investment real estate, I'm going to buy my investment real estate using the 1031 process.” So he doesn't pay tax. Now, that tells you that that after taxes paid or not paid, one investor is going to have $80,000 left to invest in real estate. Investor A still has all $100,000 of profit to work with, so using that then, Investor B can buy a property with 20% down that's worth about $400,000, Investor A though can go buy a $500,000 piece of property because that $100,000 represents a 20% down payment on a much bigger property. Make sense? Let's fast track down the road five years. They're now going to sell these properties at the exact same rate of appreciation and when they do that, Investor B is going to pay his tax bill. Now his tax was going to be another $22,000. He doesn't owe any taxes now. But look, he can only buy $442,000s worth of real estate, using leverage, to replace that, but he doesn't owe any taxes. Investor A, on the other hand, hasn't paid a penny in tax. He still owes a bunch of tax, but he can now put down a down payment on almost $700,000 in real estate. What we’re doing is just an amortization exercise on the effects of compound interest when the government is letting you use your tax dollars to buy additional real estate and what it means to you. At ten years, we start to see the gap widen between the two. Now Investor B, who owes no tax, can buy a property worth about $488,000 and they've paid $66,000 in tax. But Investor A is able to now leverage to buy almost $1,000,000 dollars in real estate because they're using that $66,000 in tax that the government is letting them keep for now. At the end of year twenty, a good long period for a real estate investing career, we find that Investor B has done pretty well for themselves. They own real estate of more than $800,000. They don't owe a penny in tax. They've paid a bunch of money in taxes. They could sit back and make profit or income off that real estate the rest of their lives. Now just to ballpark something easy, if you can get a 10% rate of return, Investor B can sit back now and enjoy $80,000 a year of income off their real estate portfolio, the rest of their lives and they never have to worry about (capital gains) tax. That looks pretty good. Until you compare that with what Investor A can do. Now Investor A still owes (capital gains) taxes, but as long as they don't sell any real estate, they will never have to pay it. Meanwhile, look at the property that they control, over $3,000,000 in real estate. And if they could make the same 10% return on that real estate that they own, they're now making $360,000 a year versus Investor B $80,000 a year. All because Investor B paid the taxes they owned, Investor A chose to leverage instead. Now I don't know about you, but $360,000 has a little bit more in my retirement than $80,000 a year does. That's the motivation. The tax dollars the IRS lets you keep to further your investing career. Very, very similar to the way of 401K or an IRA works. And it’s nothing more than an exercise in what Albert Einstein called the eighth wonder of the world, compound interest. Using the government's money to make money for yourself, that's the power of the 1031 Exchange.