Your Get-Out-Of-Jail-Free Card Has Arrived


Real estate investors in many (most?) of the nation’s markets have been held hostage since the infamous busting of the mother of all bubbles. For the first time since I can remember, properties in a buncha these markets can now be sold in a relatively reasonable time. Still, for a majority of folks, encumbered properties possess to little equity to matter. For those who own free ‘n clear, it might be time to get while the gettin’s good. I’ve been seeing this emerge the last few months. What’s better for a lotta of ’em is that they can sell their debt free properties without the necessity of a tax deferred exchange — they’re still sellin’ at a loss. If you now find yourself in this position, smile. It’s possible you’ve been given the recipe to make some pretty tasty lemonade from those lemons you’ve been hoarding. 🙂

Imagine finally being able to dump investment properties — albeit for a loss, sorry — but resulting in enough cash for you to get outa Dodge with enough do-re-mi not only to reinvest, but in a far superior market. Live ‘n learn, right?

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Here’s a Real Life Example.

Mike’s real estate investment portfolio has a few props in a market just now comin’ alive. He likes a different region of the country far more. He’s tried to sell before, but with cruddy results — not even a bad offer. Last week though, he put a test property on the market, and it sold quickly. He’d priced it right, so wasn’t surprised. He’ll now have enough net cash — none of it taxable — to acquire a much nicer property with more units. On so many levels it’s truly an escape. But wait, there’s more.

Due to the fact he was able to make the move without resorting to Section 1031 (tax deferred exchange), his new acquisition(s) will not be weighed down by the baggage of adjusted cost basis and significantly reduced depreciation. Those two factors, which Mike avoided completely, are huge. Adjusted cost basis could’ve resulted in future capital gains taxes being much larger. Also, since the original cost basis on the newly acquired property(s) will be what he paid, unaffected by 1031 ‘baggage’, the resulting enlarged annual depreciation numbers will shelter far more annual cash flow. In fact, it’ll likely be enough to allow future increases in cash flow to be covered.

This could be your Get-Out-Of-Jail-Free card. We don’t know how long this more friendly market will last, so don’t kid yourself about the time you may have to make things happen. Windows open and they close. If you recognize yourself in Mike’s scenario, explore selling your property(s) and movin’ ’em to a region better suited for the long term.

Make sense?

Photo: swanksalot

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Excellent post.

    This idea of getting out with a loss while you can goes counter to the instinct to wait out the market and catch the wave on the way up. After all no one wants to make a move that amounts to an *official* admission of loss. But it’s absolutely spot on. Because in the end, it’s always better to catch the wave on the way up in a far superior market.

  2. So you are saying that they may be some advantages in exchanging properties … selling properties (assets) in underperforming markets and buying properties in markets that have a better outlook. The trouble previously is that some of these properties were underwater.

    So I could sell my houses on Boeing Avenue and DuPont Drive and buy a house on Merck Boulevard and a duplex on Apple Street?

    Interesting. I wonder if there are markets for other assets where this can happen without worrying about pricing problems and complex closing procedures to finalize the transaction?

  3. Jeff,

    I agree and have done that very thing last year but now that I am filling out my taxes, I am kicking myself for I didn’t have a gain to offset my loss. It would have better for me to have done an exchange still because the stepped up cost basis would transfer to my new property that I got at auction for a great price. I didn’t completely lose as the loss sheltered some income but it was sheltered at the lowest rates instead of a high marginal rate. I could have deferred that loss till later when chances are under the current administration taxes may well be higher or taken some cash out realized only a part of my loss and still stepped up the basis of the newer property. I am not disagreeing with you or the article which is well written and information. I believe in unlocking equity to take advantage of new opportunities that present themselves. I am just pointing out that it is not all cut and dried and each need to know their tax consequences – either way here there will be no taxable income but there may be a way to more fully keep that loss and recoup it with a new property.

    In fact, I believe we all should never think of owning a property till we die (unless we are really old). Never fall in love or get to attached to property. They are a means to an end. Gain monthly cashflow for accumulating cash and other property acquisitions but eventually the profit you “bought” up front is still locked until you sell. In this market, selling and releasing the equity to take advantage of rock bottom prices and leveraging the low interest rates for a long term horizon (10 yrs) is a good strategy especially if you get solid middle to upper end market value for your property but keep an eye open to sell at the “right price” if is a deal readily available to “buy” more profit for most of my profit comes from purchasing the property – except in unusual bottom free fall markets.

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