If you own a trailer park, it can be difficult to part ways with your property. After all, having a lot of tenants in a trailer park can lead to a nice monthly income stream. However, unreliable rent payments, frequent upkeep, neighborhood issues, and completely unrelated circumstances may have you thinking that perhaps there are better ways to invest your money.
Well guess what, mineral rights and royalties are another great way to earn a monthly income, and you will never have to knock on a trailer door again (unless you visit the drill site). With a 1 1031 exchange, you can maximize the sale of a trailer park by turning it into valuable mineral rights and royalties.
In this guide, we will explain how to 1031 exchange tailer parks as well as go over some key questions you may have such as how to determine the value of your trailer park, how to identify a like kind property, and more.
How to Sell A Trailer Park
First things first, you’ll have to sell the trailer park. If you’ve owned it for a number of years, then you are probably well aware that this will not be a difficult step. In fact, trailer parks are one of the lowest multi-unit property investments that can be made today.
With a relatively low barrier of entry and the potential to earn a large sum of monthly rent payments, finding a buyer for a trailer park is rarely a difficult task. Here are a few of the most common methods trailer park owners sell their property:
- Word of Mouth
- Selling to an Existing Tenant (Or Shared Group_
- Online Listings
- Physical Signs
- Realty Agents
- And more
Determining the Value of Your Trailer Park
The value of a trailer park is determined by many factors, some of which can be controlled, while others are strictly circumstantial. In truth, a trailer park is more than just the sum of its property assets, as paying tenants dramatically increases the approximate value of a trailer park investment.
To best determine the total ballpark value of a trailer park, one must consider:
- The Size of the Property
- The Current Occupancy Percentage
- Vacant Lots and Possible New Developments
- The State, County & Municipality
- Energy Sources and Rates
- # of Tenants and Tenant History
- And more
Of course, a trailer park is going to be as valuable as the highest paying investor. It is always recommended to get multiple bids, appraisals, and offers when selling a trailer park.
Taxes Paid on the Selling Trailer Parks
Unless you’re taking the cash and headed out of the country to live as an outlaw, there are going to be a hefty amount of taxes to be paid when selling a trailer park. Although they will vary state to state, the following taxes may be taken by local, state and federal governments:
- Income Tax
- Capital Gains Tax
- Sales Tax
- Local Taxes
- And More
Of course, one of the best ways to reduce the amount of tax paid on the sale of a trailer park, is by using a 1031 exchange.
1031 Exchange Trailer Parks
With a 1031 exchange, a trailer park can be sold and “exchanged” for another asset of greater or equal value.
According to the IRS, the assets must be similar “like-kind” properties. When a trailer park is sold and the property is purchased with 1031 exchange, capital gains taxes will not be applied to the original sale.
Like-Kind Properties for the Sale of Trailer Parks
Although they may not physically resemble some of the similar properties outlined by the IRS, trailer parks can be used in a 1031 exchange to purchase a number of different assets without paying any capital gains tax. Most commonly these include:
- Mineral Rights and Royalties
- Apartment Buildings
- Strip Malls and Businesses
- Parking Lots
- Self Storage Facilities
- Commercial Buildings
- And More
1031 Exchange Trailer Parks Timeline
After the sale of a trailer park, taxpayers have 45 days to identify at least one like-kind property they are interested in purchasing in order to use a 1031 exchange. Up to 3 properties can be identified regardless of their value. Other limits also apply.
After narrowing down the potential investments, new properties must be purchased within 180 days of the sale of a trailer park in order to qualify for a valid 1031 exchange.
Using an Intermediary to 1031 Exchange Trailer Park
In order to make sure that deadlines are met, paperwork is filed, and the absolute pest properties are identified and purchased, we highly recommend using a 1031 exchange intermediary. Taking the legal and tax weight off of your shoulders will not only save you time, but will also save you a considerable amount of money.
What to 1031 Exchange Trailer Parks For?
As a “like kind” property, both mineral rights and mineral royalties can be purchased in a 1031 exchange after the sale of a trailer park. In some cases, active mineral rights will land investors in a stream of steady income payments for the sale of extracted minerals. On other properties, untapped mineral rights can be flipped, sold, or leased to an interested oil or gas company.
The short answer here is yes: mineral rights are generally going to be a good investment. Although gas, oil, and coal prices may fluctuate from time to time, the market is always going to be strong while large companies identify cost effective ways to extract and use the valuable resources from below the surface of the earth.
How to Maximize Your 1031 Exchange
In order to maximize your 1031 exchange (and minimize the amount of tax you pay), you will want to purchase profitable mineral rights at a reasonable rate. Talking to industry experts, and reviewing a large number of potential mineral rights opportunities is the best way to lower the risk in your investment.
Ultimately no matter how sentinel you may be, selling a trailer park for a lump sum of cash is going to feel pretty good. In order to keep more of that money in your theoretical pockets, a 1031 exchange is a great way to defer capital gains taxes with the acquisition of a new property. With mineral rights and royalties, your investment will go further, as profits from the sale of oil and gas production is a valuable asset in any portfolio.