All Forum Posts by: Kyle Shankin

That seems like a reasonable strategy. Are you negotiating yourself or using a realtor? I've found that my realtor usually has a pretty good beat on what a seller's situation/needs is/are, and how we should offer if we want to get the deal. That being said, sometimes it just comes down to the numbers. Definitely don't spend more than what will make the deal work. It sounds like a no-brainer, but it's hard to stick by when you could have the deal for just a couple thousand more.

Also, there's an awesome book on negotiating called Never Split the Difference. I heard about it on the BP podcast and downloaded the audio book. It's definitely worth a read/listen.

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@Dave Foster Nah, the beast has settled. I usually like to know how things work from a technical standpoint. Having said that, I'm now comfortable with just knowing that an exchange is easier than I came in here thinking. Regarding your post about your clients that jump between real estate and oil, well that sounds like a nice goal to shoot for.

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I love a good ghost story.

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Originally posted by @Dave Foster:

@JJ P. @Kyle Shankin and @Lynn GormleyThere's a weirdness about the 1031 process that lends to this kind of confusion. And @John Duston you may remember this the 30 minutes of 1031 education we got in our Accounting BS degree program.

The actual mechanism that has been refined by statute and case law is that there is an actual "exchange" of property. But it is through an assignment of contract rights. The client assigns his rights to sell his property to the QI. So the QI is actually the seller of the old property (on the settlement statement) . Then the client assigns his rights to purchase the new property so the QI is the actual buyer of the new property (on the settlement statement only). So the question is asked - "Did the client sell a property" - No the QI did, Did the client buy a property - No the QI did. What did the client do? - They "exchanged" properties with the QI.

There was an actual wording long time ago I think in the 2nd district court of appeals where the judge actually called this the "legal fiction of the 1031 exchange". What a compliment on what I do :)

Trade refers to the use of the property. Property that qualifies for 1031 exchanges is property that is held for productive use in trade, business, or for investment. Think of this like the shoe manufacturer who owns a factory to make his shoes. He's using the real estate for his "trade".

If I'm exchanging properties with the QI, then does that mean that technically my CPA is correct? It sounds like the transaction is with the same parties, but the bit that causes confusion is that the whole exchange actually happens over assignable rights vs. the properties themselves...is that correct?

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Originally posted by @Tina Johnson:

I don't think there's a wrong way to do this. If you feel that a 20-unit isn't going to over-extend you, then it's definitely worth doing some research.

You might be able to do options 1-3. It sounds like you have 78k. For deal 1, you'd need $41,250 (25% down payment on 125k plus the 10k for repairs). That would leave you with $36,750, more than enough for 25% down on the second deal with almost 15k left over to use as a down payment if you were to find a hard money lender for your flip. Of course, you'd need to check all of your numbers to make sure it works.

If you don't want to do all of them. I like the idea of #1. It already has a renter, has a unit ready to rent and only needs 10k to get a 3rd unit ready. That sounds like (relatively) easy money. I really like the idea of 1 and 3 or 2 and 3, that would get you some passive income with a nice capital gains project to help fund your next deal.

Of course, I'm just speculating. You have all of the hard facts and know what you feel comfortable with doing.

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There's been a ton of great info on this thread. I just wanted to say thank you to everyone who's responded. I definitely have returned to my normal state of comfort regarding the 1031 exchange process.

I also want to point out that I now have a handful of fantastic contacts who are more than happy to help out when I get to the point of having to do an exchange. Ahh the power of BP!

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@Lynn Gormley My CPA made it very clear that the buyer of my property and seller of the property that I'm to purchase, must be the same person. However, I've always understood the process to be that I can sell a property to one person, and buy from another. Some of the other comments in the thread have me thinking that my CPA probably isn't on the up and up when it comes to real-estate taxation.

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@Tina Johnson All of these look pretty good from the information that you've given. What's stopping you from going after all of them?

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Originally posted by @Scott P.:

Is it possible you misunderstood what the CPA meant or said?

No. I was very clear and asked a bunch of qualifiers to make sure that I didn't misunderstand what he was saying. But believe me, I thought that I had :)

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Originally posted by @Dave Foster:

@Kyle Shankin your CPA is either over 60 or he's been reading books that old. Until the settlement of the Starker case there was a whole cottage industry for people exchange properties simultaneously. To this day it is possible to actually trade properties with someone and by doing that complete a 1031 exchange.

But since 1996ish the process is that you sell your old property with the transaction being documented and overseen by the QI. The time periods apply and they go and buy different replacement investment property.It's not difficult. From your perspective it's actually no different than what you would normally do - sell then buy. Its just the added QI requirement and the timelines.

In the old days - yep it got a little crazy. @Jay Hinrichs is maybe the only person of my vintage who remembers these (and he's much younger than I). There would be daisy chains of people swapping with someone to get a property that someone else wanted just because a totally different person would take that property and they had the property that the person who owned the property you really wanted really wanted. So everyone would sit around a table almost and swap at once. Then some realtor would get screwed out of his commission. A fight would break out over valuations so some dry west Texas acreage would be thrown in to balance the deal.

Yeah it was tough back then - Now??? Easy peasy. Wanna do a 1031 exchange - contact a QI sell a property, buy a property.

I love this answer Dave, not just because it restores my faith in the 1031 exchange process, but because you hit the nail on the head. My CPA is in his 60's. He's a family friend and has done a phenomenal job since I've been using him, which is why I was in such distress over what he told me regarding the exchange.

You mentioned Starker exchange, I came across that when I was looking into this, but I couldn't find anything that said that the properties were not swapped, just that the transactions happened at different times.

In any case, I really appreciate your complete answer.

4 Votes

All Forum Posts by: Kyle Shankin

Kyle Shankin has started 12 posts and replied 145 times.

Post: What are negotiating best practices?

Post: "Learned" something odd about 1031 exchanges

Post: Would you purchase a house that haunted?

Post: "Learned" something odd about 1031 exchanges

Post: Need help comparing deals

Post: "Learned" something odd about 1031 exchanges

Post: "Learned" something odd about 1031 exchanges

Post: Need help comparing deals

Post: "Learned" something odd about 1031 exchanges

Post: "Learned" something odd about 1031 exchanges