What Is A 1031 Exchange? (in Real Estate)
The 1031 exchange is one of the most powerful tools an investor can have in their arsenal for building wealth in real estate. It can help you improve your passive income, simplify property and asset management, assist with your estate planning, diversify your portfolio, and so much more. So, let’s dive on in to “What Is A 1031 Exchange?” in the real estate world.
Section 1031 of the IRS Tax Code
The 1031 exchange gets its name from section 1031 of the Tax Codes from the Internal Revenue Service (also known as the IRC). This exchange is more commonly referred to as the “like-kind exchange” whereby you can sell the property that you own, defer capital gains taxes, and transfer that cash into a new property. Essentially, it’s a tax break that allows you to kick the can down the road on paying capital gains taxes, which can be as high as 20% on the gain, and keep that cash in play.
An Example of a 1031 Exchange
Let’s walk through a quick scenario to show you how a 1031 exchange might work.
You bought a shopping center for $250,000 10 years ago and today it is worth $1,000,000. If you sold it and cashed out, you’d be responsible for paying 20% taxes on the gain of $750,000 (today’s value minus your initial basis), which would be approximately $150,000 to the government.
However, you have the opportunity to execute a 1031 exchange and keep that $150,000 in cash in play by identifying a new asset. If you buy the next asset right, you’re getting a return on that cash and snowballing your wealth.
There Are Rules!
It’s absolutely critical that you follow all of the rules of section 1031 of the Internal Revenue Code to ensure that you properly qualify for the tax benefits of a 1031 exchange. These rules include:
Identification timelines
Valuation guidelines
Proper use of a qualified intermediary
And more
The 1031 exchange is great but if you don’t follow these rules to a T, there’s a chance you won’t qualify. Dive deeper into 1031 exchanges here:
If you’ve been investing for a while, you know the grind.
You’ve closed deals, managed contractors, worked through leases, and seen both wins and setbacks. Maybe you’ve owned single-family rentals, a few duplexes, or even some small commercial buildings. You understand the fundamentals: how to run numbers, navigate debt, and keep properties occupied.
But here’s a question that hits at a different level: are your investments giving you leverage or just more responsibility?
As your portfolio grows, so does the complexity. More tenants often mean more phone calls. Bigger buildings bring additional systems, staff, and liability. And while your equity might be growing on paper, your time can get stretched thin across too many directions.
That’s why more experienced investors are quietly shifting toward asset classes that offer something rare in commercial real estate: simplicity that still delivers strong returns.
Two of the most overlooked categories in this space are flex industrial and industrial outdoor storage (IOS).
They’re not flashy. You won’t find them in luxury investor decks or high-end brochures. But these properties produce solid returns, attract long-term tenants, and are surprisingly light on operational headaches. Best of all, they give seasoned investors a way to keep growing without being consumed by the demands of their portfolio.
In this post, we’ll walk through:
What makes flex and IOS so attractive
The numbers behind why they work
How they fit into a growing portfolio
And why they might be the most strategic asset class you haven’t explored yet
This is not about going bigger for the sake of scale. It’s about going smarter.
Because the goal is not more units. It’s more freedom.