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Return on Investment Modeling

Since assets involved in 1031 exchanges are, by definition, held for income, investment or productive use in a business, understanding the impact on Return on Investment ("ROI") of a contemplated exchange should be an important factor — perhaps the most important — in determining the right exchange strategy.

The Advantage of Two Income Streams

In a simple reverse exchange, the exchangor owns one of the assets and the Accommodator has title to the other. However, if the assets are, for example, real properties that are income producing, then the Exchangor gets the rental income from both properties during the exchange period. In a delayed exchange, there is no rental income at all because the Old Property has been liquidated and the cash proceeds entrusted to a QI until New Property is acquired. Of course, the actual computation of ROI is usually not quite this simple as it usually involves the cost of money and changes in the depreciation deduction and may involve other factors specific to the circumstances of the exchange.

However, in a large majority of the cases involving rental income properties, the financial benefits of a reverse exchange far outweigh those of a delayed exchange.

We provide a spreadsheet that contains a moderately complex Return on Investment model for income producing properties. Please feel free to use and modify this tool as your circumstances dictate but do it at your own risk as we cannot be held responsible for any aspect of the outcome of using this tool.

Get the ExStra ROI Modeling Tool here.