1031 Exchange Helps Rental Property Owner Buy In Another State

Added February 28, 2009 by Ilyce R. Glink

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Summary: Should you as a rental property owner who lives in California keep the building you own on the East Coast or do a 1031 exchange and buy a building in California. Ilyce explains the pitfalls of not being in the same state as the rental property you own, and suggests the 1031 exchange. The 1031 exchange will help you buy rental property nearby where you can keep an eye on your tenants.

Q: I own a single family home in NJ and am thinking of doing a 1031 exchange for an apartment building in California where I live. Do you think this is smart or should I hang on to a house located in an excellent neighborhood back east?

A: I think it's very difficult to own rental property 3,000 miles from where you live. There's no easy way for you to check on how the property is being maintained and what the tenants are doing to it. And not knowing can have disastrous financial consequences if what your tenants are doing is illegal.

I think you're much better off taking your profit out of this property, executing a 1031 tax-free exchange and buying an apartment building near where you live.

Please consult with a real estate attorney or 1031 specialist to make sure you complete the transaction in a timely fashion.

Jan. 19, 2009.

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