A self storage facility is a great way to both personally store your possessions as well earn passive income from renting out the space. However, if you are liquidating your assets, selling a self storage facility is a great way to both symbolically and physically let go of personal possessions.
1031 exchanges can be used to eliminate the capital gains tax on the sale of a self storage facility. Reinvestment in mineral rights and royalties are a great way to maximize the sale of your property with a similar asset without the majority of the work and upkeep.
In this article, we will explore how to 1031 exchange self storage facilities. In doing so, we hope to make it clear how well mineral rights and royalties can replace a self storage facility as a perfect addition to any investment portfolio.
How to Sell Your Self Storage Facilities
Of course, you can 1031 exchange self storage only once it’s sold. Whether you are selling a single or multi unit storage facility, valuable properties will likely be found by many potential buyers with the right marketing efforts.
Like homes and office buildings, self storage facilities can be sold just like any other property in the United States. Storage centers can also be traded, leased or bequeathed to another individual. Self storage facilities are often sold at a local and national levels to individuals, businesses, and other organizations.
Determining the Value of Your Self Storage Facilities
Self storage facilities are bought and sold constantly, so there are many public records that can be dug up in order to find the value of past sales. The best way to determine the value of your self storage facility would be to find the sale of a similar property in your county or state.
On case to case basis, self storage facilities are valued on their:
- Size (Number of Units)
- Capacity and Number of Current Tenants
- Property History and Maintenance
- Technology and Features (Keyless entry, air conditioning, etc.)
- Location and Neighborhood
- Market Trends
- And More
Everyone knows that the market fluctuates, and self storage facilities are not immune to this. By combining all of the factors above and looking for similar historic sales, you should be able to get a decent idea of the approximate value of your self storage facility.
Taxes Paid on the Selling Self Storage Facilities
It almost goes without saying, but not every penny of your sale is going to end up in your pockets. In fact, taxes of over 40% can even be applied to the sale of a self storage facility. Depending on your geographical location, you will likely pay:
- Federal Income Taxes
- Capital Gains Taxes
- Sales Taxes
- Local Taxes
- And More
Throughout the process of the sale, marketing, legal and process fees can all be used as a way to deduct the amount of tax dollars paid. Beyond this, exchanging your self storage facility for a new property of equal or great value is also a great way to maximize your sale.
1031 Exchange Self Storage
A 1031 exchange completely eliminates any capital gains received from the sale of a self storage facility. However, it is important to note that meeting strict timelines and completing lots of paperwork is required in order to officially file a 1031 self storage exchange.
Self Storage Facilities Like-Kind Properties
1031 exchanges are, well, “exchanges” that can be used to swap out one property for another. Under the eyes of the IRS, 1031 exchanges can only be used if the sold and purchased properties are considered to be “like-kind.”
As they are no different than many private properties, self storage facilities can be exchanged for:
- Mineral Rights and Royalties
- Apartment Buildings
- Shopping Malls and Strip Centers
- Trailer Parks
- Private Land
- And More
Beyond these similar properties, it is also possible to exchange a self storage facility for a completely different kind of property like water and ditch rights. The only difference is that more rationalization may be necessary when it comes time to file taxes.
1031 Exchange Self Storage – Timeline
After selling a self storage facility, taxpayers have 180 days to purchase a like-kind property to legally 1031 exchange self storage to eliminate capital gains taxes.
Now before you sit back and do nothing for six months, it is very important to note that at least one reasonable property must be identified within 45 days of the sale. This property does not necessarily need to be the one that is purchased, but identification is necessary to keep timelines moving.
For additional requirements, please see our 1031 Exchange Rules and Requirements Page.
Using an Intermediary to 1031 Exchange Self Storage Facilities
With timelines and paperwork piling up, it is always a good idea to speak to a 1031 exchange intermediary when selling a self storage facility. Working with someone through the sale, subsequent purchase, and exchange is the best way to make sure everything is done legally and for the highest potential value.
What Should You 1031 Exchange Self Storage Facilities For
If you’ve never considered mineral rights as a part of your investment portfolio, then you may have been living under a rock. While you’re under there, why don’t you check for some oil or natural gas?
Joking aside, mineral rights create mineral royalties for the sale of a property’s natural resources. Mineral rights and royalties are a great investment in the United States as resource scarcity makes these properties increasingly valuable.
At the end of the day, you can do whatever you want with the capital that you gain from the sale of a self storage facility. In the United States, using a 1031 exchange to defer capital gains taxes and reinvest in a like kind property is one of the best choices for American taxpayers.
With the acquisition of mineral rights and royalties, a 1031 exchange of self storage facilities can result in a potentially large income stream for many productive years.