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The Step-by-Step Planning Series for a Successful 1031 Exchange

    A bunch of arrows pointing off to lightbulbs and gears with "Explore Your Options" written below.

    Step One: Know Your Options

    The more exchanges I perform, the clearer I get that without a mapped-out plan before selling the property to be relinquished (downleg) the more headaches and anxiety there is.

    I wrote about the importance of planning a while back, [read it here] with the intention of going through the initial steps of how a plan should look, so here we go.

    Those of you who have been involved in an exchange before, know that no two exchanges are alike-there are too many moving pieces in each case. This coupled with how these very exchanges have been known to take on their own personalities, meaning there is no way to cover, nor discuss all the different ways a trade can go. I can assure you that the more educating, research and planning that occurs in the very beginning, such as the very moment that an investor decides to sell their “downleg” (property to be relinquished) is when this process should start in getting to know what all of your options are.

    For the purposes of this example, we will say that the exchanger must place $1.5 million to complete their exchange transaction also known as their trade.

    Remember, the easiest way to determine your amount to place, or spend, is equal to or higher than the sale price of your property to be relinquished.

    In this case, the exchanger sold their property for $1.5 million and needs to find a replacement property(s) for the same amount. Stay tuned for deeper conversations about this! 

    We only have $1.5 million, what are our options?

    I say “only” here because many passive investors think they need millions of dollars in order to perform a successful exchange, which couldn’t be farther from the truth! I have completed successful exchanges with less than $200K, we’ll cover that at another time.

    Consider why you are exchanging in the first place

    Is it to get out of a management intensive property or portfolio? Is it due to deferred maintenance? Or simply to upgrade or leverage your current equity position? The simplest option to consider is a fee simple purchase similar as to what you are relinquishing, especially if you are looking to grow your net worth. If it is management related, then an absolute net lease with a nationally branded single tenant net lease is an easy choice. The absolute net lease makes the tenant 100% responsible for the real estate, the building and all operating expenses. These assets can be found with brand new construction and brand new, long-term leases with strong, corporate-backed, recessionary proof uses, including fast food, fast casual restaurants, day care, drug stores, discount stores, health and medical facilities, gas station convenience stores and many others. 

    Another option is a Delaware Statutory Trust or DST, which is also a passive, non-management option, however it is not a real estate transaction but a security transaction that is completed by a securities licensed broker and requires that the exchanger be an accredited investor. I will be diving into these specific option types on future blogs.

    Other options that are not as popular are single family residential rentals; vacation rentals; raw land; farmland; mini storage; oil and gas royalties; ground leases; opportunity zones; billboards; cell towers; wind turbines and many others.

    If it is an investment property with income, it should qualify.

    Other options to consider

    How many transactions? With $1.5 million, you could easily perform multiple transactions buying two even three properties, which may provide some diversification.

    What about leverage? With $1.5 million to spend it is possible to leverage up to three times (depending on actual cash and credit worthiness) or up to as much as $4.5 million in property, which is the most common strategy used to build significant multi-generational wealth.

    If you are an investment property owner who is interested in a no obligation, private consultation, please visit, or contact James Bean of SVN-Rich Investment Real Estate Partners, CA DRE# 01970580, at 805-779-1031 or email at

    If you are an agent/broker, I am happy to discuss strategies with you on how to best serve your next listing client in preparing them for a successful exchange. Please visit the site and click on the Agent’s button located at the top right-hand corner of the Home Page!

    Don’t know what certain terms mean?

    Click here for a Glossary of Terms: 

    Please stay tuned and follow me on LinkedIn, Twitter, Instagram & Facebook @1031BrokerJames while keeping a look out for our exchange-specific content and coming YouTube Channel!

    All information is deemed to be accurate, and not advice. All investors/taxpayers should consult their CPA, tax attorney and investment advisors.