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Posted in Family Law

Real estate investments – An appropriate family business?

Real estate investments – An appropriate family business?

Businesses run by families seem to be more enduring than others are. This is because of the stability, strict set of rules, followed by all members, and because they can be passed through generations. However, not all business ideas are appropriate for families. More than others, some investments, like the real estate exchange, seem to be more favorable for this climate. Because they are deferred from income taxes, a family might benefit a lot from this type of investments. However, before proceeding in such investments, you should know about some essential aspects, as described below.

 

You will need a permanent collaborator

If you are not familiar with investments under the 1031 Section, there is a crucial rule you should follow. You must never lay hands on the money generated by the property exchange. In order to manage such a transaction, you first need to sell a property you own, find another one to exchange it with, and finally swap the properties. If you are forbidden from touching the money, naturally, you need a third party doing that for you. This is the reason specialized companies emerged on the market. Moreover, an authorized consultant can even help you with the process of finding a new property. However, you and the money you will never meet, if you want your investment to remain tax deferred.

They can offer you a flexible source of income

If you are tired of managing a soliciting business, you might want to consider changing it with a more flexible one. If the factory you own, for example is starting giving signs of low income, consider swapping it with a rental building. Investments under the Internal Revenue Code Section 1031 are quite flexible, allowing you to change two types of different buildings, as long as they have commercial purpose and they are evaluated at the same market value. Therefore, you have the possibility to swap whatever property you own with an apartment building, for example.

Combine multiple properties for a bigger transaction

Not restrictive at all, the law lets you combine multiple properties and swap them with a single bigger one. If you lack a high evaluated property, you can become inventive and find a way and swap it for a highly evaluated property. If you are daring enough, you can easily go for a hotel building, restore it and transform it in an empire ruled by your family. If you are not sure about the alternatives you have and how flexible the market is, ask your collaborator for advice. They are well aware about the real estate market and its requirements.

Here are some ideas on how to transform an opportunity the IRS gave to investors and create a successful family business. The flexibility of the income tax deferral law allows you to find a property accordingly to your preferences, grow it and pass it through generations. However, pay attention to the team of professionals helping you, because they can be either dealmakers, either deal breakers.