By Christina Porter

Many investors don’t take advantages of 1031 exchanges because of the fear of the 45-day identification period. That fear is supported by numerous horror stories of failed exchanges, resulting in the payment of devastating taxes.

With proper planning and the right resources, investors can navigate the waters of a 1031 Exchange unscathed, and frequently double or triple their spendable income, diversifying their portfolio and reducing risk. What is needed is a good grasp of the exchange process, a clear set of investment objectives and a plentiful and consistent source of quality replacement properties.

The process does not have to be difficult or stressful. The goal is to make the 45th day of your identification period the most unruffled day of your life. Believe it or not, it can be done by simply making a plan and following through.

The planning process begins by evaluating your current situation — how much do you have to work with — the income you would like to receive monthly and what your risk tolerance is — are you conservative, middle of the road or an aggressive investor? Once you have this information you can review the various scenarios, making sure that the income you would like to achieve can be produced at a level of risk that is tolerable to you.

To evaluate risk the keys are real estate basics: Make sure you understand the demographics, the terms of the leases and the quality of the tenants. By understanding the risk you will be able to judge the likelihood of you receiving the income desired and have a ready tool to compare various investment opportunities.

One of the more powerful strategies for managing risk is to diversify your portfolio. By spreading the risk out by geographical location, assets class — office, retail, multi-family, etc. — and risk category, the investor can construct a source of income that is suitable to their individual needs and tolerances.

Next week we will discuss additional ways that using a 1031 exchange can help build wealth.

Please consult with your legal and tax professionals prior to making any decision regarding any real estate investment.

(You can call Christina Porter at 1-877-4 TM 1031, or e-mail her at christina@tm1031exchange.com to discuss your specific needs. Visit www.tm1031exchange.com.)