Can I exchange rental property for REIT stock with 1031?
would buying the stock of a REIT qualify as a 'Like-Kind' exchange? Short answer, no. Long answer, a 1031 (Starker) exchange only applies to real estate.  From the Wikipedia page on the topic: To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business, or for investment. Stocks, bonds, and other properties are listed as expressly excluded by Section 1031 of the Internal Revenue Code, although securitized properties are not excluded. A REIT, being stock in a real estate company, is excluded from Section 1031.
From personal experience: Loan Impact It does impact your ability to take out other loans (to an extent) Your first investment property is going to go against your debt to income levels, so if you take out a loan, you've essentially decreased the amount you can borrow before you hit a lender's debt to income ceiling.   Two things about that: 1) I'm assuming you have a primary mortgage - if that's the case they will factor what you are already paying for your primary house + any car loans + any student loans, etc.  Once you've successfully taken out a mortgage for your investment property, you're probably close to your debt to income ceiling for any other loans.  2) There is usually a 2 year time period where this will matter the most.  Once you've rented out this property for 2 years, most financial institutions will consider a percentage of the rent as income.  At this point you can then take on more debt if you choose. Other (Possibly Negative) Impacts and Considerations Maintenance Costs Renovations Turnovers Taxes and Insurance Downpayments and interest Income tax Advertising costs Property Management costs Closing costs and Legal fees Vacancies HOA fees Other (Possibly Positive) Impacts and Considerations Passive Income as long as the numbers are right and you have a good property manager Tax deductions (And depreciation) Rent has low correlation to the market Other investment alternatives: Stocks Reits (not directly comparable to investment properties) Long story short- can be a hassle but if the numbers are right, it can be a good investment. There's a series of articles further explaining these above listed components in detail. What you are looking for is a 1031 exchange. https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031 Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. You may also sell your house for bitcoin and record the sales price on the deed with an equal or lesser amount that you bought it for. "VNQ only holds ~16% residential REITs. The rest are industrial, office, retail (e.g. shopping malls), specialized (hotels perhaps?) etc.  Thus, VNQ isn't as correlated towards housing as you might have assumed just based on it being about ""real estate."" Second of all, if by ""housing"" you mean that actual houses have gone up appreciably, then you ought to realize that residential REITs seldom hold actual houses. The residential units held tend primarily to be rental apartments. There is a relationship in prices, but not direct." "Okay. An ETF is an ""Exchange Traded Fund"". It trades like a stock, on the stock market.  Basically by buying one ETF, you can have ownership in the underlying companies that make up the ETF. So, if you buy QCLN, a green energy ETF, you own Tesla, First Solar Inc, SunPower Corporation, Vivint Solar, Advanced energy industries and a bunch of other companies that are involved in clean energy.   It allows you to gain exposure to a sector without having to buy individual companies.  There are ETFs for lots of different things. Technology ETFs, Healthcare ETFs, Consumer Staples ETFs, Utilities ETFs, etc.  REITS are essentially the same thing, except they own real estate." I think that those options might well be your best bet, given the potential 700% return in one year if you're right. You could look and see if any Synthetic Zeros (a Synthetic Zero is a derivative that will pay out a set amount if the underlying security is over a certain price point) exist for the share but chances are if they do they wouldn't offer the 700% return. Also might be worth asking the question at the quant stack exchange to see if they have any other ideas. "As a rental, this is not an ideal set of numbers. You manage to show a $255 'gain' but $275 is from payment to principal. So, from the start, you're out $20/wk.  This ignores the $170K down payment, which has an opportunity cost, however you calculate it. You can assign the same rate as the mortgage, and it's nearly $10K/yr. Or the rate you feel your choice of stock market or alternate investment would rise. Either way, you can't ignore this money.  Your mortgage rate isn't fixed. A 1% rise and it would jump to $1663 ($842/week) Ideally, a rental property is cash positive without counting principal paydown or even the tax refund. It's a risky proposition to buy and count on everything going right. I didn't mean to scare you off with ""1%"" but you should research the costs of repair and maintenance. Last year my Heat/AC system needed replacement. US$10K. This year, it's time to paint, and replace rotting trim, $7000.  In the US we have property tax that can range from 1-2% of the house value. If you don't have this tax, that's great, just please confirm this." While it may not be your preferred outcome, and doesn't eliminate the income, in the event you find yourself in the path described here you have a way to defer gains to the future. but I would then want to buy another house as a rental If you sell this house and buy another investment property (within strict time windows: 45 days to written contract and closed in 180 days),  you can transfer your basis and defer your gains via what is called a 1031 like-kind exchange You are talking about adjusting the basis of your property which has its own IRS publication Publication 551: Basis of Assets Assuming you've not taken depreciation on your land in any way, pages 4-5 cover the various ways you can increase the basis of your property. Improvements like paving and wiring such as your second case would increase the basis of the property and reduce your gains when you sell. Note that regular real estate taxes do NOT alter your basis. Again the IRS publication is where you should look on what activity would have altered your basis during your period of ownership.  Consult appropriate accounting and legal practitioners when in doubt.