1 is better than 5

Recently I helped an investor in the South Bay increase his cash flow significantly and reduce his stress. He had acquired 4 single family homes and one duplex over the last 25 years. He was very dedicated to his investments and was able to pay off most of his debt down to less than $150,000 on approximately $3,200,000 of asset value. But he was equity rich with little cash flow to show for it. His before tax cash flow was approximately $75,000 per year. Not bad, but a low rate of return on his equity. I helped him with the purchase of a brand new Rite Aid drug store in northern Michigan for $3,000,000 through the 1031 exchange from his sold 5 properties. The new investment gave him a 7.4% cap rate, a 20 year lease and NO landlord obligations. Rite Aid will take care of the building from asphalt to roof and everything in between. His before tax cash flow increased to $220,000 per year! I see much more travel and enjoyment in his future.

Eat your 1031 cake too

A recent change in the 1031 tax law provides a significant tax play for home owners with capital gains above the $250,000/$500,000 exclusion. The change allows for a home which was a principal residence 2 out of the last 5 years to be exchanged via the 1031 deferred tax method while taking the exclusion dollars for principal residence out of the transaction. The property also has to qualify as an investment property in order for this to work.
The typical scenario would be, a couple who have significant equity and capital gains in their principal residence move out of the home and rent the property for at least 1 year (and probably more - ask your CPA). They then convert the property to an investment property on their tax filings. After sufficient time so that the IRS accepts this conversion, the owners sell the property through a 1031 tax deferred exchange.
The $500,000 exclusion of capital gains is taken upon the sale. They will get these proceeds as cash from the escrow company at closing.
The amount of gain above this and any cash proceeds goes to the 1031 intermediary to be used for a purchase of a suitable exchange property. Remember "like-kind" can be virtually any real property type with some exclusions.
This blending of the personal residence exclusion and the 1031 exchange will benefit many savvy investors who qualify to use it.