As you begin setting your goals for 2027, take a fresh look at your investment real estate. Would you like to increase cash flow, diversify your portfolio, relocate your business, or spend less time managing rental properties?
If you already own real estate held for investment or business use, a 1031 exchange may help you accomplish those goals sooner while keeping more of your equity working for you.
Many investors are still waiting for mortgage rates to come down. We understand the hesitation. However, waiting for a better rate can mean losing the property that aligns with your long-term goals. Now is the time to evaluate the opportunities in front of you and determine whether a different property could provide greater value over the years ahead.
The economy continues to show important strengths. Real gross domestic product grew at a 2.2% annualized pace in the second quarter of 2026, and September unemployment remained relatively low at 4.2%. At the same time, September payroll growth was modest. These figures support a picture of continued economic expansion, with conditions varying across industries and households.
So why don’t we all feel that good about it? Inflation continues to put pressure on our budgets. Consumer prices rose 3.7% over the 12 months ending September 2026. Even when inflation slows, that generally means prices are increasing more slowly; it does not mean the higher prices we have been paying disappear. For investors, insurance, maintenance, and other operating costs should be included in the analysis alongside the mortgage payment.
Freddie Mac’s average 30-year fixed mortgage rate was 7.40% on October 8, 2026. That feels high when we remember the historically low rates available just a few years ago. Yet the same series reached 18.63% in October 1981 and a record low of 2.65% in January 2021. Today’s rates look much more familiar when viewed across several decades.
Historical perspective does not make a higher monthly payment easier to afford. It does remind us that the unusually low rates of 2020 and 2021 are a poor assumption for every future investment decision. The chart is a residential mortgage benchmark; rental-property and commercial loan rates and terms can differ.
The Federal Reserve does not directly set fixed mortgage rates. Those rates are closely associated with longer-term Treasury yields, particularly the 10-year Treasury, and are also affected by mortgage-backed securities pricing, inflation expectations and lender conditions. Fed policy can influence these factors, but mortgage rates do not move dollar for dollar with the federal funds rate.
Our growing national debt is part of the picture. More federal borrowing can put upward pressure on longer-term interest rates. The Congressional Budget Office identifies rising federal debt as one reason rates may remain above their pre-pandemic averages. That is a reason to avoid assuming a quick return to very low mortgage rates, rather than a guarantee of where rates will go.
The federal funds rate has a more direct influence on short-term rates. Many variable credit card rates follow the prime rate, which generally moves with Fed policy. Higher short-term rates can also create opportunities to earn more on savings accounts, money market deposit accounts and CDs, depending on the institution and product. Compare the actual yield and terms available to you.
Residential real estate activity has slowed from the pace many of us remember, although local markets differ. September 2026 existing-home sales were 2.2% below a year earlier, even with a modest monthly increase. A slower market may give buyers more time to evaluate a property or negotiate terms, depending on local inventory and seller motivation.
At 1031 CORP., we are seeing quite a bit of all-cash buying. These investors can evaluate acquisitions without taking on a new mortgage, although they still need to consider liquidity, operating expenses, and the return on their equity. We are also seeing commercial investors who have already jumped off the fence and are doing deals. These are observations from our exchange activity; opportunities and risks still vary by property and market.
Whether you plan to pay cash or finance your replacement property, focus on what the property can do for you over the long term. Consider rental demand, realistic income, expenses, improvements needed, and your expected holding period. If financing is involved, the investment should work at today's rates and terms. You may be able to refinance if rates decrease and you qualify, but a future refinance should be an opportunity, not a requirement for the property to make sense.
Section 1031 allows eligible real property held for investment or productive use in a trade or business to be exchanged for like-kind real property while deferring recognition of gain. A properly structured exchange can preserve equity that would otherwise be used to pay current taxes, including taxes associated with depreciation recapture. The deferred gain carries into the replacement property because an exchange is a tax deferral, not automatic tax elimination.
The property that worked for you ten years ago may no longer be your best investment. A 1031 exchange can help you move into a property with stronger rental potential, more units, or lower anticipated maintenance. Look at net cash flow after expenses and financing. A larger rent check alone does not necessarily mean a better return.
Like-kind real estate offers considerable flexibility. You may be able to exchange a rental house for an apartment building, commercial property, or land held for investment. You can also exchange one property for several replacement properties. Consider spreading your investment across different locations, property types, or tenants to better fit your goals.
If managing rentals is taking more time than you want to give, consider whether a triple net lease property (NNN) or a Delaware Statutory Trust (DST) interest could fit your plans. Depending on the lease, a tenant may take responsibility for many property expenses. A DST may provide access to professionally managed real estate. These investments still involve risk; DST interests can be illiquid, and investors generally have limited control. Review suitability and exchange eligibility with your financial and tax advisors.
An investment rental in a location where you would eventually like to spend more time may support both your investment and personal goals. However, a property acquired primarily for personal use does not qualify for a 1031 exchange. The IRS vacation-home safe harbor generally requires a 24-month qualifying period, with specified fair-market rental and personal-use limits in each 12-month period. Simply renting for two years does not automatically satisfy every requirement.
If you later convert the property to personal use or a primary residence, work with your tax advisor before making that change. A later sale may involve additional restrictions on the home-sale exclusion and tax attributable to depreciation.
If you own the real estate used by your business, a 1031 exchange may help you move to a better location, expand into a larger facility, or acquire multiple business properties. Only qualifying real property is eligible. Equipment, furniture, and business goodwill require separate tax analysis. If the replacement property must be acquired first or improved as part of the exchange, ask about reverse and improvement exchanges early. 1031 CORP. serves as the Qualified Intermediary, and our sister company, REVERSE 1031 CORP., assists with parking exchange structures.
Real estate professionals, attorneys, accountants, closing agents, and financial advisors can help clients recognize when a sale creates an opportunity to reposition their real estate. Ask what the client wants the next property to accomplish. Then bring 1031 CORP. into the conversation before the relinquished property closes.
For a typical deferred exchange, beginning on the date the relinquished property was sold, replacement property must be identified in writing within 45 days and acquired within 180 days, or by the tax return due date, including extensions, if earlier. Arrange the exchange before closing and avoid actual or constructive receipt of the sale proceeds.
For full tax deferral, the general goal is to acquire equal or greater replacement value and reinvest all net exchange equity. No debt or additional cash can be used to replace old debt. Cash received and net debt relief may create taxable boot. Have your accountant review the transaction’s numbers and treatment of closing costs. Any refinancing strategy should also be reviewed for timing and tax implications.
A 1031 exchange can help you accomplish much more than immediate tax deferral. It can help you reposition your real estate to support the next stage of your business and your life.
Don’t let the memory of a historically low mortgage rate keep you from considering a property that makes sense for the long term. Do your homework, use realistic assumptions, and seize opportunities that align with your goals. Contact 1031 CORP. before you sell to explore how a 1031 exchange can help keep your equity invested and working for you. We are here to make the exchange experience easy.
Have questions about 1031 exchanges or want to talk through a specific situation? Contact us at 800.828.1031 or request a complimentary consultation.