Carlos Azucena 

Main: (650) 391-1700

Cell: (408) 205-2679

Fax: (650) 391-1710


DRE# 01738155

Marcus & MIllichap #00530854

2626 Hanover St

Palo Alto, CA 94304

© 2019 by CFA Properties of Marcus & Millichap



1031 Exchange

Case Study:

A 1031 Exchange is greatly valued in the commercial real estate industry as an investment strategy that can be used for buying better property which can gain much higher returns while avoiding paying taxes. In the example below, Michael owned an apartment complex for many years but it was management intensive and was generating a very low return on his equity. Michael reached out to me to see what he can do with his property as he was getting older and did not want the stress of keeping up with the tenants. At the same time, the property needed significant improvements that would only further reduce his future income. After careful consideration, Michael decided a 1031 Exchange would be the best strategy as he could sell his property without paying taxes and buy a new property that better suited his needs. See below for details:

BEFORE 1031 Exchange
  • Rents far below market 

  • Significant differed maintenance

  • Long term owner = no more depreciation write off 

  • Significant management responsibility

  • Potential for rent control restricting ability to increase rents and evict problem tenants

  • Unpredictable cash flows – potential for major maintenance expenses, i.e. roof, plumbing, electrical, kitchens/baths, etc…

  • Extremely low 1.5% cash on cash return – $27,000 annually

AFTER 1031 Exchange
Single Tenant Rental - NNN
  • Brand new construction

  • New 15 year corporate guaranteed lease

  • Zero management responsibilities

  • NO expenses, tenant pays taxes, insurance and maintenance

  • Consistent cash flow - no unexpected expenses make it easier to budget

  • Consistent rent increases of 10% during every option period

  • Great demographics

  • 6.25% cash on cash return - $181,000 annually

By doing a 1031 exchange, Steve was able to get an over 400% return than he was previously receiving. He doesn’t have to worry about paying property management, property taxes, or insurance on the building. Today he has a constant cash flow, can travel without the fear of management headaches and has significantly simplified his life. All Steve has to do with his new property is figure out if he wants direct deposit or drive to the bank to deposit the check he receives every month.

Would you like to do a 1031 Exchange? Contact me to see if its the best option for you