1031 Exchanges

 

 
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The Triple A+ Golden Rule


 

We have a deep understanding of how to best utilize the advantages and approach a successful 1031 exchange, in fact 75% of our transactions involve a 1031 exchange.

1031 EXCHANGE

Maximizing Value and Return On Equity (ROE)

1031 Exchanges allow investors to trade up and defer taxes. Marcus & Millichap, the largest real estate firm focused exclusively on investment brokerage, is one of the industry's leaders in 1031 exchanges. Our long-term relationships with owners and investor of every major property type allow us to match properties and exchange buyers with speed and efficiency.

LEVERAGING THE MARKET

Owners of investment property struggle with the dilemma of how to take advantage of built-up equity in their income-producing properties and increase their return on equity while deferring payment of capital gains taxes. The current market environment encourages private investors to upgrade or reposition their real estate holdings.

BENEFITS OF A 1031 EXCHANGE

With proper guidance from a tax professional or attorney, well-informed investors are utilizing the 1031 provision in the Internal Revenue Code, also known as Starker exchange, to meet the dual objectives of "trading up" to larger or higher-quality properties, while at the same time deferring capital gains taxes. Some investors, especially aging baby boomers, are trading into properties that are less management intensive.

KNOWING THE BASICS

White there are three basic types of exchanges-simultaneous, reverse and deferred-95 percent are deferred. When selling an investment property, the code allows a seller 45 days from the close of escrow of the relinquished property (the "down leg") to identify up to three replacement properties (the "up leg"). and an additional 135 days to close escrow on at least one of the identified properties. Alternatively, more properties can be designated if certain valuation tests are met. The seller must contract with a neutral third party, known as a qualified intermediary or accommodator, to hold the funds from the sale of the relinquished property and purchase the replacement property for the seller's benefit. Completing this process allows sellers of real property held for an investment purposes to delay or defer the payment of capital gains and recapture the depreciation tax benefit. Deviating from the process described above may result in tax consequences or costly penalties.

MAKE INFORMED DECISIONS

While 1031 exchanges have gained increasing popularity, each investor should evaluate their own situation and objectives. The first step is to have a qualified real estate agent evaluate your property to determine market value and then discuss the tax alternatives with your tax advisor. In some instances, it may be worth taking the cash and paying capital gain taxes, considering that interest rates remain historically low. On the other hand, an exchange may be the key to unlocking built-up equity and providing the opportunity to expand a portfolio and create greater wealth. The biggest mistake would not to know your alternatives.

This has made it extremely important for LAAA to become experts at the process to ensure the best results for our clients.

 
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Our Best Kept Secret

In doing so we developed our basis for the leading facilitator in success: Find your buyer before becoming a buyer!

2 Reasons Why:

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You need to sell your property at the highest price possible in order to maximize your equity for your exchange and to guarantee top of the market pricing, we need time to fully market and expose your property. Only through a full marketing campaign, which creates competition and an auction-like environment, can we guarantee that we did not leave a dollar on the table when selling your building.

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You want to be the most desirable exchange buyer in order to get access to the best deals. Think about it from the seller’s perspective: if you write an offer on a “perfect” exchange property before you have found a buyer for your own building, you are not a desirable or probable buyer, since your offer will be contingent on selling your building first.

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Be Proactive

The moment that our team begins our marketing campaign for your current building, we will begin to show you available exchange properties (both on-market and off-market) weekly and sometimes daily.

The purpose of this is to familiarize you with the properties that are out there so that you can become an expert on what is out there and what you want. By the time we find the best buyer for your current property, we will be very aware of the market in which you want to buy, and we can start writing offers for properties that make sense.

Furthermore, once we find your buyer, we can use THEIR escrow deposit on the property you are selling to use as your escrow deposit for your exchange property that you are purchasing. This makes it so the 1031 exchange process has 100% no “out of pocket” costs.


Be Patient

The #1 worry of our clientele is "What if I sell my building first and then cannot find my exchange property in time? I do not want to pay taxes!"

The truth is we have time! The standard marketing time is 2-4 weeks. The standard escrow on selling your current property is 60-90 days, and we are showing you properties every week from the moment we start marketing.

Then, if somehow we have not found you a property in that time so far, you have 6 months to close escrow on your exchange property once your current property closes escrow (although we never need that 6 months). The market is extremely fluid with new listings and closings each and every day. Therefore, it is important for our clients to be patient in finding the correct property for them.

An additional benefit of being patient is that you do not have to overpay for any property. We will constantly be writing offers on desirable exchange properties at prices that make sense for you, not at prices that the sellers want you to pay.

With our 1031 exchange process, you will have more time than you will ever need, which allows you to be patient and find the correct property for you and your family and at the best price.


Build in Safety Nets

Although we have almost never used them, every good plan needs a backup plan. Our #1 Safety Net = Extensions to escrow on the sale of your current property

Remember, the 1031 exchange “clock” does not start ticking until you close escrow on your current property. Therefore – we can delay that clock from even starting by building in seller options to extend escrow. Usually, we will have 2 or 3, 30-day extensions to escrow built into the contract with the buyer for your current building. This means that we can make escrow pretty much as long as we want until we find your exchange property.

During those extensions, our team will be extremely aggressive in showing you every exchange property out there so that we can find your exchange property before we close escrow on your current property.

This safety net is one of the reasons why our team has never had a client pay taxes in a 1031 exchange, and truthfully, we have never come close. But remember this is a backup plan.

Our #1 Goal - Close escrow on your current property and exchange property in the same week, or at a bare minimum, the same month.

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Key TakeawayS

The best deals go to the best buyers.

If you find a buyer for your building first, you now become the MOST desirable type of buyer since you are the most likely to close escrow successfully.

Desirable buyers get the best deals.

You will also get much easier access to the off-market deals that generally sell for cheaper prices.

This is why LAAA is extremely proactive for our exchange clients. Our goal is not to just beat the 1031 exchange timelines, but our goal to close your current property and your exchange property in the same week!

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