The phone rang at 8 AM on a Tuesday. Another investor asking the same question I've been hearing all year: "Jonathan, should I wait for rates to drop before doing my 1031 exchange?"
My answer might surprise you.
While everyone else is sitting on the sidelines waiting for mortgage rates to fall below 5%, the smartest investors I know are making moves right now. Here's why rising interest rates aren't the enemy of 1031 exchanges – they're actually creating some of the best opportunities I've seen in years.
The Current Interest Rate Reality
Let's start with the facts. Current mortgage rates are averaging 6.73% for a 30-year fixed-rate loan, and the general consensus is that the 30-year fixed rate will stay between 6.5% and 7% for the foreseeable future. The Mortgage Bankers Association predicts that 30-year mortgage rates will stay flat, starting the year at 6.8% and ending at 6.7%.
But here's what most people don't understand: interest rates are still below historical averages. Between April 1971 and July 2025, 30-year fixed-rate mortgages averaged 7.71%. Since Freddie Mac began tracking rates in April 1971, the median 30-year mortgage rate is 7.33%.
The real issue isn't that rates are high – it's that we got spoiled by historically low rates for over a decade.
Why Rising Rates Are Actually Creating 1031 Opportunities
1. The Great Seller Motivation Surge
When interest rates climb, property owners face a critical decision point. A substantial volume of commercial real estate loans is scheduled to mature in 2025. As these loans come due in a higher interest rate environment compared to when they originated, some property owners may face challenges refinancing.
This creates what I call "motivated seller inventory" – owners who need to sell rather than want to sell. These situations often lead to better pricing for 1031 exchange buyers.
2. Reduced Competition from Traditional Buyers
The vast majority (84%) of Americans who bought a home in the past year plan on refinancing to a lower rate in the future. Most of them (53%) plan on waiting until rates drop below 5%, and that might not happen within the next three years.
While traditional buyers wait on the sidelines, 1031 exchange investors who understand the tax benefits can move quickly with less competition. This is especially powerful for cash-heavy investors or those with access to private financing.
3. The Seller Financing Boom
Strict underwriting guidelines continue to make CRE financing challenging. Seller-financed deals will continue to increase, with sellers motivated to seek creative 1031 Exchange solutions to optimize their purchasing potential.
I've seen a 40% increase in seller-financed 1031 deals this year. Sellers are willing to carry paper at below-market rates to facilitate their own exchanges, creating win-win scenarios.
The Hidden Market Dynamics Working in Your favor
Inventory Is Actually Improving
Contrary to popular belief, the market is shifting in favor of buyers. The supply of houses for sale has grown to a post-pandemic peak. For the second month in a row, active listings exceeded 1 million in June 2025.
Even better for negotiation power: In June, more than 20% of listings featured price reductions. That's the highest percentage of price cuts for any June since 2016.
Properties Are Staying on Market Longer
The median number of days homes were on the market rose to 53 days in June. This gives 1031 exchange buyers more time to conduct due diligence and negotiate favorable terms – luxuries that were impossible during the frenzy of 2021-2022.
Strategic Approaches for the Current Market
Focus on Cash Flow Over Appreciation
In a higher-rate environment, properties that generate strong cash flow become more valuable than those banking on appreciation. Look for:
- Triple net lease properties with long-term tenants
- Multifamily properties in strong rental markets
- Industrial properties with essential business tenants
Consider Reverse Exchanges
Limited property availability is increasing the popularity of Reverse Exchanges, where taxpayers close on their new Replacement Property before selling their current investment.
This strategy lets you secure the perfect replacement property first, then sell your current property without the pressure of tight timelines.
The 2025 Market Outlook
Despite interest rate fluctuations, 1031 transactional volume is expected to increase due to tax deferral benefits. But here's the key insight: you don't need to wait for that decrease to benefit.
1031 transactions will stay active as informed investors and commercial property owners employ strategic 1031 tax deferral tools. These will continue to be popular due to higher interest rates and interest rate volatility coupled with limited quality inventory.
Real-World Success Story
One of our clients, a commercial property owner in Texas, was facing a loan maturity with rates 3% higher than his original loan. Instead of refinancing at the higher rate, he completed a 1031 exchange into a seller-financed industrial property in Florida.
The result? He locked in a 5.5% seller-financed rate (2% below market), moved to a more landlord-friendly state, and increased his cash flow by 30%. The rising rate environment actually created the opportunity.
Your Action Plan for Rising Rate Opportunities
1. Build Your Cash Position
Having cash or access to bridge financing gives you tremendous negotiating power when sellers need to move quickly.
2. Expand Your Geographic Focus
Owners will continue shifting investment property purchases to more landlord regulatory friendly areas. Don't limit yourself to your local market.
3. Work with the Best Specialists
The complexity of today's market requires expertise. As the #1 choice for sophisticated investors, 1031 Specialists has completed over 30,000 exchanges and understands how to navigate these challenging conditions. Get our 1031 Bible in your inbox for comprehensive guidance.
4. Act Decisively
Our best advice is to buy when you're financially ready and can afford the home you want — regardless of current interest rates. Remember that you're not stuck with your mortgage rate forever. If rates drop significantly, homeowners can always refinance later on to cut costs.
The Bottom Line
Rising interest rates aren't stopping smart investors – they're creating opportunities for those who know how to look. While others wait for perfect conditions that may never come, you can be building wealth through strategic 1031 exchanges right now.
The key is understanding that 1031 exchanges aren't just about tax deferral – they're about positioning yourself to take advantage of market inefficiencies. And right now, those inefficiencies are everywhere.
Don't let rising rates scare you away from building wealth. Let them guide you toward better opportunities.
Ready to explore your 1031 exchange options in today's market? Use our 1031 Exchange Calculator to see your potential savings, sign up for our free email course at 1031 Tax Free Wealth, or call us at 631.438.1031.
Frequently Asked Questions
Q: Should I wait for interest rates to drop before doing a 1031 exchange?
A: No. Waiting for perfect market conditions often means missing real opportunities. 1031 Specialists has helped over 30,000 investors successfully complete exchanges in all market conditions. The tax benefits and strategic advantages of 1031 exchanges often outweigh interest rate concerns.
Q: How do rising rates affect 1031 exchange opportunities?
A: Rising rates actually create more opportunities by motivating sellers, reducing buyer competition, and increasing seller financing options. Our clients are finding better deals now than they did during the low-rate frenzy of 2020-2021.
Q: Can I still get good financing for my 1031 exchange property?
A: Absolutely. While rates are higher than recent years, they're still reasonable historically. Plus, 1031 Specialists works with lenders who specialize in exchange transactions and understand the unique timing requirements.
Q: What if rates drop after I complete my exchange?
A: You can always refinance your replacement property if rates drop significantly. The key is not missing out on the tax deferral benefits and wealth-building opportunities available today.
Q: Why choose 1031 Specialists over other Qualified Intermediaries?
A: We're the #1 choice for sophisticated investors because we combine 25+ years of experience, a 100% success rate, and the industry's most robust fiduciary standard. Our "pay when you close" guarantee means you only pay if your exchange succeeds. Check out our FAQs for more details.
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