In case you haven't noticed, much of the country is experiencing the most severe and protracted real estate slump in nearly 20 years. Florida, California, and New England, as well as regional markets in Phoenix, Las Vegas and Atlanta are depressed almost beyond belief. In fact, values in some of these locations are down a whopping 50 percent from the highs of just three years ago. Bad news? Perhaps. But look at the silver lining: we're in the midst of one of the most sensational buyer's markets of all times.

In a market off by 50 percent you could actually say that there's a two-for-one sale on real estate. Okay, you say so what's the point? The point is now might be the perfect time to take advantage of some of the great deals out there. And if you play your cards right you won't even need cash to do it.

Not all markets are hurting. And that means there are individuals out there with substantial paper appreciation in their portfolios. Are you one of them? Would you like to trade up to better and more lucrative properties as though you were turning in last year's Beamer for a pair of Mercedes? Well here's how it's done.

Many folks have heard of the 1031 Exchange but may not be familiar with the process. It's actually quite simple. A 1031 exchange allows a seller to either sell a property outright or exchange it for property of like kind and defer all capital gains taxes on profits from the sale. The two key points in such a transaction is that you must exchange for a property of like kind and that the value of the new property should be the same or greater than that of the old.
In a simultaneous exchange you would trade your property for one of like kind and value and the deal would be coplete with little more than a deed-for-deed transaction. In a delayed exchange, which is far more common than a simultaneous swap, you'd sell your property outright and have 45 days from the date of the sale to locate a target property and 180 days from the sale date to close on it.

Let's look at an example. You've owned a nice little triplex in your town for the past several years. The value of the building has increased and you estimate that after paying off the underlying debt you'd be left with a profit of $500,000. You sell the property outright using the services of a qualified intermediary, often an attorney of title company familiar with 1031 exchanges. The proceeds are deposited in an interest bearing account. Now you only need to find a like property with the same of greater value.

Within the 45 days allowed under the 1031 exchange rules, you locate a seller in Las Vegas who owns two homes he's now using as rentals because there is virtually no market for these homes to residential buyers. At the peak of the Vegas market the homes appraised for $500,000 each. But presently they will appraise for only half that. You strike a deal with this individual. He receives the $500,000 from your intermediary and you receive two nice Las Vegas rentals.

One of the key points in such an exchange is that you must swap for a property of like kind. You have a triplex which has been used as income producing property. You essentially exchange the triplex for rental homes, which are also income producing properties. Your seller is relieved of the burden of owning property in a down market and you are looking to the future cycle of appreciation with your Vegas rentals which has traditionally followed every downturn in history.

Is this a far-fetched scenario? Not in many markets throughout the US today. Will you be able to pull of such a deal? You'll never know unless you try.