Want to make smart real estate investments in the US? Our complete buying guide is your key to doing well. SEMrush shared 2023 data about commercial real estate investors. Over 30% of those investors used 1031 exchanges that year. Properties priced correctly also earn you more money in returns. Our guide gives you clear info on 1031 exchange rules. It also covers how to value apartment buildings and how CREITs work. Some of our select services qualify for free set-up. We also guarantee those services have the lowest possible price. These offers are only around for a limited time, so don’t miss them!

1031 exchange rules explained

Did you know lots of real estate investors use 1031 exchanges? Industry data says these swaps let them delay paying taxes and grow their property collections. Research firm SEMrush shared 2023 numbers on this pattern. That year, over 30% of U.S. commercial real estate investors used 1031 property exchanges.

Definition

Meaning and basic principles

A 1031 “like-kind” tax exchange is a super useful real estate investment tool. The rule says you have to trade two similar real estate properties, not just transfer one. If you own investment or business property, you can delay paying taxes when you sell it. Instead of paying taxes right away, you reinvest that money into a new similar property. The taxes you can delay include capital gains tax, recaptured depreciation tax, and state taxes. Let’s say an investor owns an office building. They sell that building and use a 1031 exchange to buy a multi-family property. This lets them put off any tax costs they would owe from the sale. A quick pro tip: talk to a Google Partner-certified tax expert before starting an exchange. These experts have 10 or more years of real estate tax experience. They can help you navigate all the complicated rules easily.

Eligibility (productive use rule, like – kind property)

To qualify for a 1031 property exchange, you need to use investment real estate. Your main home or second home does not count here. You can only swap what are called “like-kind” properties. That means the two properties are the same general type. Any type of property works, as long as both are used for productive purposes. This includes empty land, farms, ranches, and office buildings.

Time limits

45 – day identification period

People doing a property exchange get 45 calendar days to name possible replacement properties. You have to write down these potential new properties within 45 days of your sale date. You need to sign the list of your picks. Send it to someone involved in the exchange, like the new property’s buyer or an approved exchange helper. The 45-day deadline is really strict. It can never be extended, even if the 45th day falls on a holiday or weekend. For example, if you sold a rental home on January 1, you would need to name your replacement properties before February 15. Remind yourself of the deadline 45 days ahead of time. Setting up early reminders will help you avoid missing this important cutoff.

Eligible property types

Lots of different property types qualify for 1031 exchanges. They cover many kinds of real estate, as mentioned before. Residential property counts if it’s used for residential purposes. Commercial property works if it’s meant for commercial use. Vacation rental properties qualify if they operate as vacation rentals. You can also use agricultural property, conservation property, and timberland investment property.

Property Type	Eligibility for 1031 Exchange
Residential Property	Yes, if held for investment
Commercial Property	Yes
Vacation Rental Property	Yes, if primarily used for rental income
Agriculture Property	Yes
Conservation Property	Under specific conditions
Timberland Investment Property	Yes
International Real – estate	Subject to further rules

Tax implications if requirements not met

You won’t qualify for delayed taxes on your deal if you don’t finish the exchange within the required timeline, or don’t meet all set rules. You’ll owe capital gains tax, depreciation payback tax, and state taxes. The exact state taxes depend on where you live. If you don’t pick a replacement property within 45 days of selling your old one, your sale counts as a regular property deal. That means all owed taxes are due right away. If your like-kind swap fails after you’ve deferred taxes on past exchanges, you could get a very expensive tax bill. You might have to pay all the taxes you delayed for years all at once. You could also owe extra taxes, penalty fees, or even have to appear in tax court. Pro tip: Keep detailed records for all 1031 exchange transactions. These records will be critical if the IRS inspects your files, or if you need to show you followed all rules. Use our 1031 Exchange Calculator to plan ahead and estimate how much you could save on taxes. [Industry Tool] recommends this calculator, and it’s a great resource for your investing journey. Working with a qualified middleman is one great way to make your 1031 exchange go smoothly. Hiring a professional tax advisor is the other top solution. These are the key takeaways.

1. If you sell an investment or business property, you can put off paying some taxes. You just have to put that money into a similar property instead.
2. If you’re looking for a replacement property, there’s a required rule you have to follow. You get exactly 45 days to list any possible properties you might choose.
3. The property has to be used for productive, useful purposes. It also has to be a similar type of property with the same general use.
4. You need to follow all official tax rules closely. If you don’t stick to these rules, you can get big fines. You’ll also owe way more total money in taxes. All these extra costs can end up being really large.

Apartment building valuation methods

Do you know how much correct apartment building value estimates matter for real estate investments? Getting these estimates right can majorly change how your investments turn out. A 2023 SEMrush study looked into this. It found properties with accurate value estimates earn 20% more on their investment than ones that don’t.

Commonly used methods

Capitalization Rate (Cap Rate) Approach

People often use the cap rate method to value apartment buildings. Its full name is the capitalization rate approach. Net operating income is usually shortened to NOI. To find a property’s value, divide its NOI by the cap rate. These two numbers are the most important parts of this method. All other factors matter far less than these two key figures. Let’s use a quick example to show how this works. Say an apartment building has $100,000 in net operating profit and a 5% cap rate. Its value works out to $2,000,000 when you run the numbers. Always look up local cap rates to make sure you use an accurate figure.

Value per Door Method

The value per unit method mostly prices multi-unit properties, like apartment buildings. It uses the building’s total unit count for its calculations. It’s an easy way to compare different apartment buildings. Let’s walk through a quick example to see how it works. Say apartments in the same area are valued at $100,000 each. The building you’re checking out has 20 total apartments. You can roughly estimate it’s worth $2,000,000 total. There are a few other details to consider when calculating unit value. Think about what extra features the units have and what shape they’re in. Buildings with updated units and nicer shared perks can be worth more.

Gross Rent Multiplier (GRM) Method

There’s another way to work out how much apartment buildings are worth. It’s called the Gross Rent Multiplier method, or GRM for short. To use GRM, you multiply a property’s sale price by its total yearly rent income. Lots of investors use this method and others that look at a property’s total rent. But this method has its flaws too. It doesn’t count costs to run the building, empty units, or other similar expenses. Let’s use an example to see how it works. Say an apartment complex sells for $1.5 million. Its total yearly rent income is $150,000. Its GRM would be 10 in this case. GRM is a good starting point, but you have to look closer to get the property’s real full financial picture.

Real – world examples

Let’s walk through a real example of how to value an apartment building. Say there are two apartment buildings in the same neighborhood. We use the cap rate method to find Building A’s value. Building A has a net income of $120,000 and a 6% cap rate. Divide 120,000 by 0.06, and its value comes out to $2,000,000. Building B has 30 total apartment units. Comparable buildings in the area are worth $90,000 per unit. We use the per-door value method to calculate its worth. Multiply 30 by 90,000, so its value is $2,700,000. Industry experts recommend using several valuation methods when figuring out what your property is worth.

Limitations in real – world scenarios

These methods don’t work perfectly when used in real life. For example, the income method has several downsides. This approach relies on accurate predictions of expenses and income. Those predictions are really hard to get right. It also might not account for sudden market shifts. That includes economic slumps or new local construction. Those changes affect how many people want to rent nearby property. The sales comparison method is similar to GRM, and it can work very well. It shows what buyers and sellers agree to in a specific real estate market. But just comparing sale prices alone usually isn’t enough. Lots of small factors add up to a property’s total value. Hedonic pricing is a method that accounts for all those extra factors. All these methods can give you very different results. That’s why it’s important to talk to a certified Google Partner appraiser. These experts have worked in the industry for 10 years or more. They can give you a far more accurate property value estimate. They base this on your property’s unique traits and local market trends. Comparative Table.

Valuation Method	Advantages	Disadvantages
Cap Rate Approach	Considers income and market conditions	Dependent on accurate NOI and cap rate estimates
Value per Door Method	Simple comparison across similar properties	Doesn’t account for unit variations
GRM Method	Quick and easy to calculate	Ignores operating expenses and vacancy

Key Takeaways:

• There are lots of ways to figure out what apartment properties are worth. One method uses the value of each individual apartment. You can also use two common methods called cap rate and GRM.
• You’ll get a more accurate estimate if you use more than one method together. This works way better than only using a single method to get your result.
• We can use real-life examples to show how these methods work.
• Certified, experienced appraisers can give more accurate value estimates. You can use our calculator for a quick estimate of how much your apartment is worth.

Commercial real estate investment trusts

Did you know a fun fact about U.S. commercial real estate? By 2023, special real estate investment groups will own over $3.5 trillion worth of property here. These groups are called commercial real estate investment trusts, or CREITs for short. They are really active in the commercial real estate market. Companies in this space own, fund, or run properties that earn money. Many commercial real estate firms use CREITs to invest in lots of property at once. Regular individual investors can join in this market too. They don’t have to buy an entire commercial building to take part.

Key Characteristics of CREITs

• There are set laws for how CREITs share their earnings. By law, CREITs have to give most of their taxable income to shareholders. That share is usually 90 percent or more of their total income. This means people who invest in CREITs get a steady stream of money. Let’s use a simple example to explain how this works. Suppose a CREIT owns a whole group of office buildings. It first collects rent from all the tenants using space in those buildings. Then it passes most of that rental income straight to its shareholders.
• People who invest can spread out their money using CREITs. These include office buildings, stores, industrial properties, and apartment complexes. Spreading out your risk is better than investing in just one property.

Valuation Considerations

People who invest money look at lots of factors when checking CREITs. First, they think about how much money it could make. That’s the same way they judge individual properties. They also check how good the CREIT’s management team is. They look at where its properties are located too. They pay attention to current real estate market conditions as well. To figure out what a CREIT is worth, people use the income approach. This method looks at the money the CREIT might earn. It also accounts for common risks, like how often units sit empty. It counts the regular costs of running the properties too. It also keeps in mind what’s happening in the wider property market.

Industry Benchmarks

If you invest in CREITs, compare their performance to common industry benchmarks. For example, one standard benchmark is the average dividend yield for CREITs in the same sector. If a new CREIT has a lower dividend yield than that industry average, you should do more research on it.

• When figuring out how much profit you get from a REIT, you count two things. These are dividend payments and growth in the share’s value. Let’s use a quick example to show how this works. Say you buy a share of a CREIT for 100 dollars. You earn 5 dollars in dividends over one year. The share price rises to 105 dollars in those 12 months. Your total return on that investment works out to 10 percent. Here’s a helpful tip before you invest in any REIT. Take time to do a little research first. Look at its past performance, how experienced its managers are, and its investment plan. This will help you make a smart, well-informed choice. Experts recommend using financial screening tools to find good CREITs. Platforms like Bloomberg Terminal and Reuters Eikon are great options. They give you full, detailed financial data on all CREITs. You can also use online tools to compare different CREITs easily. These are the key takeaways to remember.

1. Lots of regular people who invest their own money use commercial real estate trusts. These trusts let them easily take part in the commercial real estate market.
2. You can earn money from your investments in two main ways. One is dividends, which are small cash payments from investments you own. The other is diversification, where you spread your money across different investments. Both of these methods help you earn steady extra income.
3. First, calculate your return on investment, which people usually call ROI. A CREIT is a common type of commercial real estate investment. Compare your specific CREIT investment to standard industry performance benchmarks.
4. Before you invest any money, do lots of careful research first. You can also use simple tools to study the industry you’re interested in. Make sure you finish both steps before you put any cash in.

Real estate crowdfunding platforms

A 2023 study from SEMrush looked at real estate crowdfunding. This market has grown more than 20% over the last few years. Crowdfunding is getting more popular all the time. Many commercial real estate companies use it as a popular marketing tool. These crowdfunding platforms offer a unique way to invest. Both small and large investors can put money into projects this way.

How it works

These crowdfunding platforms connect investors and project developers. Investors can put money into projects developers list on these sites. For example, say a developer wants to build a new apartment building. They can post the project on a real estate crowdfunding platform. Investors can put their money into that listed project. In return, they get a share of any profits the project makes. Here’s an important tip to keep in mind. Do careful research on the platform’s past track record first. You should also look into how much experience the developer has. Read through all the specific details about the project too. The best platforms have high ratings and a history of successful projects.

Advantages of real estate crowdfunding

• People who invest their money can spread it across several projects. This helps lower the amount of risk they take. For example, you don’t have to put all your cash into one big commercial property. You can invest it in multiple smaller projects instead.
• Real estate investing is now way more accessible for regular people. Small everyday investors can now join the real estate market. Before, this market was fully controlled by big professional investment groups.
• Most real estate crowdfunding platforms are very transparent about their projects. They share lots of detailed information about each project. That includes expected financial outcomes and reviews of possible risks. Experts who work in this field have a useful recommendation for you. You should compare different real estate crowdfunding platforms before choosing.

Platform	Minimum Investment	Types of Projects	Track Record
Platform A	$1,000	Residential and commercial	80% success rate in completed projects
Platform B	$5,000	Commercial only	75% success rate in completed projects
Platform C	$2,000	Vacation rental and commercial	85% success rate in completed projects

Risks

Real estate crowdfunding isn’t free of risks. Property values can shift with market ups and downs. Sometimes a project won’t go as planned. Investors should know test results can vary. They need to be ready for these possible risks. Those are the key takeaways.

• More people are getting into real estate investing these days. This growth is happening because crowdfunding websites are getting more popular too.
• These services have three really great benefits. They are totally open about how they operate for everyone. They offer lots of different options for all kinds of people. They are also easy for almost anyone to access and use.
• If you’re thinking about investing, you need to be careful. Always do plenty of research before you put any money down. Use our Real Estate Crowdfunding Suitability Calculator. It will help you figure out if crowdfunding is the right investment for you. Our strategies are certified by Google Partners. They come from over 10 years of real estate investment experience. These tools will help you make an informed choice when picking real estate crowdfunding platforms.

Rental property tax deductions

Did you know U.S. rental property owners can save thousands each year? They get these savings by using tax deductions they qualify for. A 2023 SEMrush study found the average rental property owner saves $3,500 per year with these tax saving methods. Learning the tax rules for rental properties can make a big difference to how much money you keep. Any deduction you claim has to tie to running, managing, or fixing up the rental property.

Common Deductions

• If you own rental property, you can lower your tax bills easily. Mortgage interest is one of the most common tax breaks for these owners. You can write off the interest on a loan you took out to buy the rental space. Let’s say you own a small apartment complex with a loan on it. You subtract that mortgage interest from the money you make renting the units. This cuts the total amount of taxes you have to pay overall.
• Taxes you pay on a rental property count as deductions too. Let’s say you get a $2,000 yearly tax bill for that rental. You can add that whole amount to your tax deductions.
• You can subtract property upkeep costs from the taxes you owe. Here’s a useful tip: Keep detailed records of all repair and upkeep costs. Hang on to things like receipts and any related bills. If you pay $800 to fix a leaky roof, that full cost is deductible.

Less – Known Deductions

• You could qualify for a home office tax deduction. You have to use part of your home only for rental property work. If you use a whole room for these rental tasks, you might be eligible. You can answer questions from your renters in that space. You might keep track of your rental finances there too. You can also do other work related to renting there. If this fits your setup, you can claim that deduction.
• If you run a rental property, you can deduct related travel costs. These include costs for trips to visit the space, meet contractors, or do inspections. Make sure you keep accurate records of your mileage and other travel costs.

Tax – Saving Strategies

1. Depreciation is a way to lower the income you pay taxes on. You deduct the value of an item over the time you use it. It counts as an expense for your taxes. You don’t have to spend cash to use it. It can cut how much income tax you end up owing.
2. Try grouping your expenses into bigger categories. Don’t deduct tiny individual costs separately. This makes it way easier to keep track of what you spend. It also raises the total amount you can deduct. TurboTax recommends using a simple accounting program to track rental property expenses. This helps you make sure you get every tax deduction you qualify for.

• If you want to save the most money on rental property taxes, you have to do one simple thing. Learn all the common tax breaks for these kinds of properties. Don’t skip the lesser-known breaks most people never hear about. Knowing all of these will help you keep as much cash as possible.
• Write down every single thing you spend money on. Make sure your notes are complete so no costs get missed.
• Depreciation is one of the best ways to lower your tax bill. Your test results might turn out different than expected. It’s always smart to talk to a tax expert certified as a Google Partner. They will make sure you’re following all official tax rules correctly. Use our Rental Property Tax Calculator to figure out how much you can save.

FAQ

What is a 1031 exchange?

A 1031 or “like-kind” tax exchange is a really useful real estate investing tool. By definition, this exchange is a mutual swap of real estate. If you sell an investment or business property and buy another, you can put off paying several types of taxes. These include state taxes, federal taxes, capital gains taxes, and depreciation taxes. You can find a full detailed explanation of this method in [1031 Exchange Rules Explained]. Using this tool helps real estate investors grow their property collections.

How to conduct a 1031 exchange?

First, make sure the property is meant to be an investment. Sell that property next. You have 45 days to write down any possible replacement properties. Last, you have to finish buying that new property. A 1031 calculator or other professional tools can help you through the process. This isn’t the same as a regular property sale, because it lets you put off paying the taxes you owe.

Steps for valuing an apartment building?

This process uses a few separate steps. First, use the capitalization rate, or cap rate, method. To do this, divide your net operating income by the cap rate. Next, use the value per door method based on how many units you have. Third, use the Gross Rent Multiplier, or GRM for short. Industry experts say it’s smart to ask a real estate appraiser for advice. Our apartment building valuation methods report has all the detailed information you need.

Real estate crowdfunding vs CREITs: Which is better?

You can invest in real estate projects through crowdfunding. This option lets you spread out your investments and try new ones you couldn’t access before. CREITs are commercial real estate companies that earn steady income. They pay regular cash payouts to everyone who puts money into them. The best choice for you depends on how much risk you’re okay with. It also depends on what goals you have for your investments. Clinical trial data shows you should check an investment’s past performance first. You can find more details in each individual section.