What is a 1031 Exchange?
In a hot real estate market such as this, investors are well-advised to pause and consider their buy/sell strategies. One vehicle with a proven, decades-long track record of preserving capital gains is the 1031 Exchange.
Essentially, a 1031 Exchange is exactly what the name implies—it is the exchange of like properties between buyer and seller. (The 1031 part of the name refers to that section of the Internal Revenue code, for those of you who are curious).
One of the many interesting aspects of the 1031 exchange is that “like kind” is loosely defined, and virtually any real estate asset can be swapped for any other, such as office for multifamily, or retail for industrial. Virtually, the transaction is limited solely by the buyer’s interest in the property the seller wants to shed.
Who is a Part of a 1031 Exchange?
But the buyer and the seller are not the sole participants in a 1031 like-kind exchange. There also needs to be a qualified intermediary (QI) who holds your capital gains on the sale, almost like an escrow account. Within the 45-day period, you send the QI a form listing the properties you have identified for a 1031 Exchange. Up to three properties can be on the list, of which one must be used in the 1031 Exchange. So how do you go about finding those properties?
Finding 1031 Exchange Properties
The pressure is on to identify the right properties within the 45-day notification period. In the net lease marketplace, there are often 3,400 properties on the market at any given time and being able to evaluate and assess all of these properties in a timely matter is challenging. One of the best things to do, is to work with a specialized real estate broker that can quickly narrow down the opportunities, allowing you to focus on the ones that most closely fit with your personal investment goals.
At Avison Young, we have a vast network of brokers and clients and can efficiently sort through the available assets and uncover properties that are off-market or soon to be coming to market. Our experienced team is able to compare recent comps and trends to the open deals and work with our clients to best identify the best properties and then continue with the due diligence to analyze and transact the exchange within the 180-day timeline that follows.
Yes, the 1031 Exchange is quite a different animal than many investors are normally used to. But it is an important tool to add to your arsenal of strategies, and working with an experienced 1031 firm in identifying the right property(ies) is key.
If you have a property that you wish to sell and exchange, then it is important to know that 1031 exchange benefits may be available to you. We’re a team of professionals who help guide our clients through many different types of real estate matters, and in turn, identify the best opportunities in the marketplace. If you would like more information about pursuing a 1031 exchange, call or email us today.