Marketing campaign or agent for 1031 exchange?

Question

Hi everyone, I am very excited to be here. I have wanted to try real estate investing for awhile, and I have decided the time is now to get out there and make things happen. I have one rental property that I am going to sell and use the proceeds to invest in a small multifamily apartment building in Colorado.

Should I use a real estate agent or a marketing campaign to find the other half of my 1031 exchange?

Dave Foster · Answer

@Sharon Owens the tight time lines of the 1031 make a direct mail marketing campaign tough to pull off unless you start well before your actual sale.  But that being said I'd use every avenue available to you so you can get the perfect replacement

Mark Creason · Answer

you have 45 days to declare and 180 days to close from sale.

Mark

Bill S. · Answer

@Sharon Owens what you are suggesting is exactly what I did. I actually ended up buying three properties from that campaign. 2 with hard money and 1 with 1031 funds. The campaign wasn't cheap either. I spent about $9,000 before and during the 45 days to find the properties I bought. In each case I purchased well below market value. One property appraised at more than $100k above what I paid for it. That was with the WAY below market rents.

Sharon Dittrick · Answer

Hi Dave,

I am selling the house in May 2016.  I am using the time now to locate a property.

Dave Foster · Answer

@Nate Wightman, the time lines can be tricky.  @Mark Creason nails them above.  The issues you'll face will not have anything to do with the documentation or preparation of the 1031.  The difficulty (but fortunately the one you as the broker or investor have control over) is the location of the new property.

Although you have only 45 days after the sale to create your list of potential replacements there is nothing that prevents you from starting your search for replacements before the sale.  In fact the only thing that can't overlap are the actual closings.  So if your client happens to find the perfect replacement property before the sale consummates they can go into contract as long the sale is closed before the purchase of the new.  We have often done simultaneous same table closings even where the sale is closed and a new pen is used to then sign the documents on the purchase.

So it's the search that's key.  One other possibility for you to maybe put in your back pocket is a fractional syndicated opportunity like a TIC or DST that could be used as a back up.  There are also turnkey rental providers that are now carrying large inventories of similar type and priced rentals that might be good replacement options as well.

Scott Smith · Answer

There are some serious investor concerns with the TIC vs the DST. The DST is better for a number of reasons, though more expensive. The DST allows for a 1031 exchange into the DST without having to wind up a TIC each time an investor wants to exit and a new investor enter. This advantage alone creates substantial savings in terms of issues with financing, deeds of the properties, etc.

Sharon Dittrick · Answer

Hi Leslie,  If things don't shake out with the time period I will come calling.  Thanks so much

Bill Exeter · Answer

The acronym DST can stand for many things.  In this case, the acronym DST stands for Delaware Statutory Trust and not the Deferred Sales Trust (beware of the Deferred Sales Trust).  The Delaware Statutory Trust is very similar to the TIC in terms of results, but wrapped in a different legal wrapper.  The TIC and DST allow you to buy a fractional interest in large commercial properties.  There are pros and cons as with any investment.

Sharon Dittrick · Answer

Wow Bill away to go that is awesome.  How did you find the properties?

Sharon Dittrick · Answer

Hi Dave,

I never heard of the TIC or the DST.  I looked them both up, and I would consider the TIC (Tenants in Common), because it I believe I have a clear understanding.  However the DST (Deferred Sales Trust) is bit confusing.  Thanks for the back up ideas.

Marketing campaign or agent for 1031 exchange?

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