1031 exchange shopping center

How to 1031 Exchange Shopping Center into Mineral Rights & Royalties

Today we take a look at 1031 exchange for shopping centers and will uncover a few key questions that people may have on how to 1031 exchange shopping centers into mineral rights and royalties.

With more and more people turning to online retail solutions, shopping malls and strip centers across the country are no longer the highly valuable assets they once were. Whereas it is true that many restaurants and businesses still use malls and shopping centers as a physical space, the competing number of tenants has been slowly lowering nationally for the past decade.

If you own a shopping mall or strip center, then this trend may be reason enough for you to consider selling your property. To maximize the amount of capital you net, a 1031 exchange can be used to upgrade your mall into highly valuable mineral rights.

In this article, we will explore how to sell a shopping mall or strip center before outlining how and why to use a 1031 exchange for shopping centers to purchase mineral rights with the proceeds.

How to Sell Your Shopping Mall & Strip Center

Although they are dwindling in popularity, shopping malls and strips centers are often still located in very highly sought after locations. On the marketplace today, many investors find creative ways to revitalize shopping malls and strip centers into highly profitable properties.

Due to their large stature and high number of moving parts, finding a strong bid for the sale of your shopping mall or strip center may be somewhat difficult.

Determining the Value of Your Mall or Storefront

First, it is important to know the approximate value of a mall or storefront. Whereas the market for malls is going to fluctuate just as any other real estate investing will, there are many aspects of a mall that can be added up to determine the approximate value of the property.

To get a rough idea of what a mall or storefront might be worth, owners must consider:

  • The Land
  • The Buildings
  • The Parking Areas
  • The Number of Paying Tenants
  • The Mall’s History and Zoning
  • Property Taxes
  • Community Trends and Developments
  • And Much More

Storefronts and malls are sold on the open marketplace with buyers able to bid and pay whatever they are willing to acquire. Oftentimes, commercial real estate companies are hired to specifically present and screen potential candidates for the sale of a mall or strip center.

Taxes Paid on the Selling Shopping Malls & Strip Centers

Unfortunately, the sale of a large asset such as a mall or a strip center requires the former owner to pay a large number of taxes and fees along the way. Although it may vary between locations across the country, most commonly, mall sales require the following be paid:

  • Depreciation Recapture
  • Federal Income Taxes
  • Capital Gains Taxes
  • Sales Taxes
  • Local Taxes
  • And More

1031 Exchange Shopping Centers

Of course, savvy investors are well aware that 1031 exchanges can be used in order to defer some or all capital gains taxes associated with the sale of a mall or strip center. Post-sale, taxpayers can purchase another large property asset through a 1031 exchange. If the new property is of equal or greater value than the mall, no capital gains taxes will be applied to the original sale.

Like Kind Properties for the Sale of Shopping Centers

According to the IRS, taxpayers must purchase an asset that is similar to a mall or strip center in order to qualify for a tax-free 1031 exchange. Although the list goes on and on, here are some of the most common “like kind” properties purchased after the sale of a shopping center:

  • Mineral Rights and Royalties
  • Hotels and Motels
  • Apartment Buildings
  • Office Buildings
  • Condominiums
  • Gas Stations
  • Convenience Stores
  • And more.

1031 Exchange Shopping Center Timeline

Once a shopping mall center is sold, a new property must be purchased within 180 days in order to qualify for a 1031 exchange. To start, taxpayers must identify at least one property of similar or greater value within 45 days. This initial property is not necessarily the one that needs to be purchased, but the 45-day window is designed to keep the process moving forward.

Using an Intermediary to 1031 Exchange Shopping Center

With deadlines, paperwork, and tons of properties to analyze and consider, a 1031 exchange is oftentimes never a one man job. Instead, it is recommended to seek out a qualified 1031 exchange intermediary in order to smooth the process of selling, buying, and maximizing the investment of your assets.

Why 1031 Exchange Shopping Center into Mineral Rights?

Mineral rights and royalties are a great investment that allows shareholders to profit from the sale of oil, gas, coal, and other valuable resources extracted from the earth. Whereas a shopping mall or strip center is usually only profitable if all of the space is filled by paying tenants, mineral rights are typically only leased to one oil and gas company.

What this means is that as a new mineral rights owner, there is very little you will likely have to do aside from cash checks once a successful oil or gas operation is up and running.

How to Maximize Your 1031 Exchange with Mineral Rights

A 1031 exchange helps transfer the sale of a property to the purchase of mineral rights, without any capital gains taxes being applied. For over 100 years, mineral rights have been a consistent part of many American inverter’s portfolios and are therefore a steady and reliable asset to own.

Of course, there are many mineral rights on the marketplace that are extremely overvalued. Working with an industry expert to identify the most profitable mineral rights and royalties on your budget is the key to ongoing financial success.

Conclusion

Today, shopping malls and strip centers may not be as profitable as they once were. With that in mind, selling your strip mall can still potentially be a large money making endeavor. In order to eliminate capital gains taxes and ensure ongoing success, smart investors should highly consider looking into mineral rights and royalties after selling a mall or strip center.

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