According to a new study from Zillow, it appears that homebuyers this year continue to face challenges in terms of purchasing property. Inventory is down 6.5 percent since 2014, and home values have grown 3.3 percent over this same period. Although the market seems to belong to the sellers at the moment, many buyers choose to press ahead due to tax benefits or stability. Buy-to-let is an option, especially if you’re ultimately interested in earning additional income or exchanging property through 1031 exchanges. Read on to learn more about the benefits of buying a home now to convert to rental income.
Real estate can be very helpful in diversifying your investment income. You can use it as a whole other class, and it’s tangible, which is why real estate attracts so many investors these days. Just like you might regularly invest in stocks, bonds, certificates of deposit, or cash, investing in real estate helps create a diversified portfolio.
Using the home for business purposes, such as renting, is also a way to qualify for future 1031 exchanges. You cannot use the house primarily as your own residence or vacation home, so make sure the house is rented out to others most of the time. This allows you to qualify for tax benefits in a 1031 exchange.
If you ultimately decide to opt to use a 1031 exchange, here is a brief description of how that process works:
• You would choose a qualified intermediary to help you receive funds on your behalf and apply them toward the purchase of a second (or more) pieces of property.
• Identify the property you want to sell through the 1031 exchange rules, deferring capital gains taxes on the money you would earn from the sale.
• Identify the property or portions of the property that you would like to purchase to replace that initial sale. It helps to do this early, as the strict time limits mean that taking too long to identify or purchase another property could cause you to lose the tax benefits of a 1031 exchange. Working with your qualified intermediary is another way to help address the issues. terms associated with this transaction.
• Sell the initial property using your qualified intermediary and then proceed to purchase the additional property or properties.
These steps are just basic guidelines for meeting the requirements of a 1031 exchange; always consult your legal or accounting professional for more information.