How to 1031 Exchange Convenient Stores into Mineral Rights and Royalties

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convenient-stores

In American cities large and small, convenience stores are an essential part of the consumer ecosystem. With the right location, a convenience store can be a highly profitable business whether as the landlord or general manager.
With that said, favorable real estate and existing customer flow can make convenient stores an incredibly hot commodity. For first time investors and seasoned property owners, the proceeds of the sale of a convenience store can be maximized by using a 1031 exchange.

With a 1031 exchange, convenience stores can be “exchanged” for another property so as to avoid paying any capital gains tax from the original sale. In today’s energy market, there are few better ways to reinvest the sale of a convenience store than with mineral rights.

In this article, we will detail the steps to take when selling a convenience store, using a 1031 exchange, and purchasing profitable mineral rights and royalties.

How to Sell A Convenience Store

First things first, let’s sell your convenience store. Convenience stores can be sold, traded, or bequeathed on the open market just like any other kind of property. With this in mind, convenience stores can be sold by using local ads, online listings, real estate brokers, private buyers, and more.

Determining the Value of Your Convenience Store

The great thing about convenience stores is that they can be found all over the world. In the United States, it is extremely easy to locate property records and appraisal values of convenience stores in and around most areas of the country. With this in mind, determining the value of your convenience store is best represented by comparing it to similar properties on the market today.

The total value of a convenience store can be determined by factoring in the following considerations:

  • Property Location (Foot or Car Traffic)
  • Property Size
  • Number of Parking Spaces
  • Existing Structures
  • Number of Gasoline Pumps
  • Current Operations, Partnerships, and Supply Chains
  • Franchise Agreements
  • And more

When it comes to convenience, location is almost everything. Beyond that, the value of a convenience store is largely dependent on the conditions of the current facilities and business operations.

Taxes Paid on the Sale of a Convenience Store

Whenever you put a price tag on your convenience store, don’t count your chickens before they hatch. It is important to remember that a considerable amount of taxes are paid on the sale of a convenience store. This includes:

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

With these fees factored in, you can expect to pay as much as 40% of the sale price in total taxes. However, as we mentioned before, capital gains taxes can be partially or completely avoided by utilizing a 1031 exchange.

Selling Your Convenience Store with a 1031 Exchange

With a 1031 exchange, the purchase of a like-kind property makes it possible to “trade” a convenience store and avoid capital gains taxes. As there are many strict rules and timelines to meet, it is recommended to utilize a 1031 intermediary when initiating an exchange.

Like-Kind Properties for the Sale of a Convenience Store in a 1031 Exchange

Under the all knowing power of the Internal Revenue Service (IRS), most properties can be considered similar enough to a convenience store that a 1031 exchange can be used. For example, capital gains taxes will be avoided if you use a 1031 exchange to purchase

  • Mineral Rights and Royalties
  • Land
  • Water and Ditch Rights
  • Homes
  • Apartment Buildings
  • Farms
  • And more.

Timeline for Using a 1031 Exchange after Selling a Convenience Store

After you sell a convenience store, you have 45 days to identify at least one property that can be considered in a 1031 exchange. Although you do not necessarily have to purchase the first property identified, only 3 total properties can be identified regardless of their value. A purchase must be made within 180 days of the sale in order for a 1031 exchange to be valid.

How to Purchase Mineral Rights and Royalties

More than any other like-kind property, we strongly recommend looking into the purchase of mineral rights and royalties after the sale of a convenience store. If you are unfamiliar, mineral rights are the property rights of a land’s subsurface, which entitles owners to lease or sell the value resources found within the earth’s crust.

Why are mineral rights a good investment?

Active mineral rights allow for property owners to receive monthly mineral royalty checks as a fixed percentage of the sale of oil gas or other natural resources. Even if a property is not currently being drilled, mineral rights retain their value if the property has the potential to be excavated in the future.

How to Maximize Your 1031 Exchange with Mineral Rights

If you’re new to mineral rights and royalties, we recommend that you speak with a 1031 intermediary that specializes in the subject. Whereas mineral rights transactions are not required to be made public record, determining the current and potential future value of mineral rights can be difficult for first time investors.

Conclusion

At the end of the day, convenience stores sales can lead to huge lump sums of cash. The best way to retain, reinvest, and profit from that cash is by using 1031 exchange to avoid capital gains taxes.

Mineral rights and royalties are the perfect, passive reinvestment for former convenience store owners. With the right property and oil and gas lease, owning the parietal or total mineral rights of a property can lead to a steady stream of revenue in the form of mineral royalties.

For more information on the timelines, laws, and process of filing a 1031 exchange, feel free to read our full list of rules and regulations.

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