Improvement 1031 Exchange

We facilitate improvement 1031 exchange structures for investors nationwide every single day. If you find a property that needs work to reach its full potential, this is your most powerful tool. You do not have to settle for a “turn-key” property just to satisfy the IRS. Instead, you can use your tax-deferred proceeds to actually fund the renovations or new construction on your replacement asset.

Because these are complex, you should get ahold of us as soon as possible. Structuring these correctly from day one is the only way to ensure your tax deferral remains valid. We handle the heavy lifting so you can focus on the construction.

How the Improvement Structure Works

Much like a reverse exchange, an improvement exchange requires a specific legal setup. We use an Exchange Accommodation Titleholder (EAT) to “park” the property while the work is being done. We formalize this with a Qualified Exchange Accommodation Agreement (QEAA).

You cannot own the property and make improvements to it using exchange funds at the same time. Therefore, the EAT holds the title while your contractors complete the work. Once the improvements are finished, or the 180-day clock runs out, we transfer the upgraded property to you.

Optimize with the BRRRR Strategy

Many of our most successful clients combine an improvement 1031 exchange with the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). This combination allows you to:

• Buy a distressed asset using tax-deferred dollars.
• Rehab the property using exchange proceeds to force appreciation.
• Rent it out to establish a high-income stream.
• Refinance later to pull out tax-free cash for your next deal.

This is the ultimate “wealth accelerator.” You are essentially using the government’s tax money to pay for your renovations. We see investors grow their portfolios much faster using this specific method.

Critical Rules to Remember

To achieve 100% tax deferral, you must still follow the core 1031 requirements:

1. Equal or Greater Value: The final value of the improved property must be equal to or greater than the property you sold.
2. Use of Proceeds: All exchange funds must be spent on the property or the construction costs within the 180-day window.
3. No “Self-Constructing”: You generally cannot pay yourself for the labor; funds must go to third-party vendors and materials.

The Ultimate Wealth Accelerator: 1031 + BRRRR + DSCR

Once the improvements are complete and the property is producing rental income, our clients often take the next step: refinancing with a DSCR (Debt Service Coverage Ratio) loan.

A DSCR loan is a game-changer for the improvement 1031 exchange strategy because it qualifies primarily on the property’s ability to cover its debt from rental income—not your personal income. This makes it the ideal tool for building a scalable, national investment portfolio.

Most lenders look for a DSCR of 1.1–1.25. This means your property’s monthly income exceeds the mortgage payment by 10-25%. By using this loan to pull cash back out of your now-improved asset, you can reinvest that capital into your next deal. All the while, your original 1031 exchange continues to defer those initial taxes.