I am about to buy an FSBO. The seller plans to take the proceeds and buy another investment property. His price is "firm because of capital gains taxes that he will have to pay when he sells."
My question is, do you think there is a downside in telling him about 1031 exchanges in hopes to get him more flexible on price. Please let me know of any pitfalls that you can see by doing this.
I won't be recommending anything to him, just telling him that some people have done it this way.
Thanks in advance!
There should not be any real downside. The 1031 Exchange would not hold up the transaction, will allow him to defer the taxes since he is going to reinvest anyway, will buy you a ton of goodwill, and will create some room for negotiation. The 1031 Exchange fee is minimal, so it is not a cost prohibitive proposition. I would be happy to walk the seller through the transaction if he has any questions.
I keep meaning to ask, and I know a lot will depend on the specifics of the deal, but what kind of range of costs/fees are associated with a typical one property for one property exchange. QI fees, etc.
We charge $795.00 for one sale and one purchase.
Be upfront about the 1031 exchange. Maybe you don't do this deal but he may be a help in the future. If he sees that you have his interests first you may very well see the favor returned sometime down the road. If not at least you'll feel a sense of good karma.
i would tell him everything about the 1031. Let him know he can, as I call it, "Swap Until You Drop" and defer the capital gains tax forever. Also, that his kids can inherit his property at a stepped up basis to benefit them.
You can have him as a client as he exchanges himself to financial security. Besides, eventually he will find out about exchanges and wonder why you never told him about it.
@Mark Bookhagen k Bookhagen great question - I actually just stumbled into reading a general overview on 1031 exchanges a half hour ago on a local ccmi certified, multi-family investment brokers website in our area. So wishing I knew about this two years ago when we were approached about selling our duplex - it would have spurred me to into action two years sooner to buy the next, larger place and helped me defer some taxes...but at least I know now. @Darrie Bennett , @Steven J. good luck and let us know how it goes!
Whoops I meant CCIM certified...
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