A recently completed 1031 exchange allowed an investor to defer capital gains taxes by swapping Property A, a $2,000,000 single-family home investment property in San Francisco, for Property B, a $2,000,000 Dutch Bros coffee house in Portland, Oregon. Both properties had identical purchase prices and equity of $2,000,000, ensuring a seamless exchange.
Property A (Relinquished Property):
- Type: Single-family home investment property in San Francisco
- Value: $2,000,000
- Equity: $2,000,000
- Monthly Income: $7,500
- Vacancy Rate: 5% (95% occupancy, ~28.5 days/month)
- Monthly Expenses: $2,450
- Net Operating Income (NOI): $7,500 × 0.95 - $2,450 = $4,675/month or $56,100/year
- Cap Rate: ($56,100 ÷ $2,000,000) × 100 ≈ 2.81%
Property B (Replacement Property):
- Type: Dutch Bros coffee house in Portland, Oregon
- Value: $2,000,000
- Equity: $2,000,000
- Monthly Income: $16,500
- Vacancy Rate: 0% (100% occupancy)
- Monthly Expenses: $3,100
- Net Operating Income (NOI): $16,500 × 1.0 - $3,100 = $13,400/month or $160,800/year
- Cap Rate: ($160,800 ÷ $2,000,000) × 100 ≈ 8.04%
Exchange Summary:The completed 1031 exchange enabled the investor to defer taxes by exchanging Property A for Property B, both qualifying as like-kind investment properties. With equal values ($2,000,000) and equity ($2,000,000), the exchange avoided boot. Property B generates significantly higher cash flow ($13,400 vs. $4,675 monthly NOI) and has a 0% vacancy rate compared to Property A’s 5%, offering superior income stability. Its cap rate (8.04%) far exceeds Property A’s (2.81%), indicating a stronger return. The exchange shifted the investor’s portfolio toward higher cash flow and zero vacancy risk, though San Francisco’s potential for long-term appreciation contrasts with Portland’s stable but likely lower-growth commercial market. The transaction complied with IRS rules, using a qualified intermediary and meeting timelines (45 days to identify, 180 days to close). The investor now benefits from enhanced cash flow and stability with a reliable tenant like Dutch Bros, though differences in managing a commercial coffee house versus a residential property.
.png)
.jpg)
%20(1).png)