Real estate investors love the 1031 exchange because it allows them to re-invest their profits without having to pay Uncle Sam. A 1031 exchange allows an investor to sell one investment property, and re-invest their profits into another investment property without paying capital gains tax.
This allows an investor to put their profits back to work for them instead of handing them over to the IRS.
Most investors and agents are very aware of the basics of a 1031 exchange. However, 9 out of 10 don’t realize the variety of options they have when purchasing a new investment property with a 1031 exchange. One of the options most real estate investors and agents don’t realize they have is the ability to purchase either a working or fractional interest in oil production.
An interest in oil production has the potential to provide your clients with an increased cash flow without the management responsibilities involved with being a landlord. A productive oil and gas well has the potential to provide your investors with 100% repayment of their initial investment in less than 4 years.
The repayment period will depend on several different factors; including the price of oil in the future and the amount of oil coming from the wells they have an interest in. A 1031 exchange with oil based real estate investments can help your investors turn a negative situation into a positive situation.
“You can have real returns of 15% a year with zero leverage,” “The Ontario Teachers’ Pension fund is our partner. They invested in the early stages of our oil company and they had to send their executives down to Brazil to conduct ‘sanity tests’ because they could not believe the wealth creation.” –
I chose to share this quote because it shows both sides of the coin for a real estate investor when considering oil based real estate investments. You can see the skepticism along with the potential for unrivaled wealth creation.
Investors can get the best of both worlds with appreciation, predictable cash flow and double digit returns by trading their real estate investments for an interest in oil and gas production.
If you missed it, click here to see part 1 of this article.