Reverse exchange help

Buying & Selling Real Estate
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Reverse exchange help

Kian B.
Residential Real Estate Broker · San Diego, CA · Member since 2009 · 4 posts · 0 votes

I am def. interested in a 1031 (just a smart move) but Here is where the tricky party comes in. I have a property that is now under contract. I want to look into doing a reverse exhange only because It would give me more flexibility in searching for properties. I am looking at about 1.1 million worth of property. I dont want to put all "my eggs in one basket" so I will buying a few properties with the money I recieve from the property. My only worry is that i wont have enough time to find these properties within those 45 days in which I need to show proof of closing. I have looked around at many websites and a lot of people call a reverse exchange a "monster" I was wondering if anyone could give me some input on the matter.

on a side note:
I am very fond of this website and have used it many times to educated myself. Everyone that i talk to about real estate has heard me mention this website because you guys have helped me understand so much and i am very grateful for that. I just wanted to say that because I believe in educating yourself anyway possible. regardless of who you are and where you came from. and with this website and the internet in gerneral it is possible and i want to express how grateful i am to people like you guys who help people everyday.... OK im done

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  • Account Closed
    Tucson, AZ · Member since 2008 · 945 posts · 45 votes
    16y

    You should have been looking for replacement properties before you even listed the one you have under contract. If you haven't started looking yet, start right now.
    And if you don't have the 1031 wording as part of your contract, amend the contract immediately, or possibly do an addendum.

    You do not have to wait til after closing to search for properties. I don't know the details of reverse exchanges, buying a different property before you sell your property, but do be careful. Besides reading here and the various 1031 sites, call someone (look on the internet for 1031 Exchange services, or Starker services, I think they're called, and talk to people who facilitate them, and consider using one of them. Tell them you're thinking of doing it, so you don't get tied i until you're sure you can, in your situation.
    They have different fee schedules, and handle the details a little differently, so ask how much they charge and what you get for that service.

    And when someone else replies here, consider they probably have a lot more knowledge than I do. I have never done a reverse exchange, and it's been a long time since I did a standard one.

    Ofgift

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  • Account Closed
    OR · Member since 2008 · 1k+ posts · 845 votes
    16y

    If your sale property is under contract, my suggetsion is simple go out and make offers and have the closing date on your replacement come after the closing date in your existing contract.

    I looked into reverse and it's not hard but it costs a lot more. The accomodator sets up an independent LLC to hold the properties until the final exchange is made. The danger I see is that you set it up, buy property, pay the accomodator and legal fees, and then your sale falls through.

    I've seen an awful lot of sales fall out of escrow, and I'd hate to be depending on that money to pay for property I'd already purchased.

    This is a buyers market. If you are under a good sound contract, you should not have any problem finding sellers who will agree to sell to you contingient to the close of your sale.

    It's my understanding that you can easily buy 3 replacement properties. If you want more than 3, it is much more complicated and expensive.

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  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    16y

    Reverse 1031 Exchanges are not necessarily monsters, but they should not be take lightly. They are more complicated, and should only be undertaken after proactive planning. Those who jump in without planning are asking for a difficult experience.

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
    WebsiteView Page
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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y

    This is an older thread, so maybe the OP has already done the exchange.

    But given that his location was Pennsylvania, there are a few things about a 1031 exchange that come up with Pennsylvania, that you may or may not encounter in other states. First, unlike the IRS, Pennsylvania does not recognize the deferral of the capital gains; check whether your state treats deferral of capital gains in a 1031 exchange like the IRS does. Second, this topic was about a reverse exchange. As PNW pointed out, the QI will have to take title, and they charge additional fees for that to happen. In Pennsylvania, you get another unwelcome amount to pay in the form of additional real estate transfer taxes when you do a reverse exchange. The PA Dept of Revenue has some transfer tax examples on the web somewhere, and for a reverse exchange there is an additional payment of transfer taxes that they will expect to receive! In some places in PA, the RTT is no less than 1.5% and as much as 4% of the "value" ("value" can be determined in a number of ways for this, so I won't get into that); typically 2% in most places in the state of PA.

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  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    14y

    Steve is right on the money. If you are selling property in the state of Pennsylvania, you would defer the payment of Federal taxes, but recognize PA taxes. Reverse Exchanges are more complicated and expensive in PA as well.

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
    WebsiteView Page
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