Author: Heather Connor, Realtor
BUYER ADVICE: How do you use the 1031 exchange and still win the property?
A lot of my clients have been asking the same questions over and over again, and we will cover some of these questions.
However, we will focus on our question of the week.
An investor in Crested Butte asked regarding the purchase of a property using the 1031 Exchange with Contingency. They need to sell their previous property first so that they can then purchase the replacement property. In such a competitive market, anybody that has a contingency is losing. That being said, the Reverse 1031 Exchange is the solution if you want to make the winning offer.
The Reverse 1031 Exchange – it is the 1031 Exchange but in reverse. What happens is you can purchase your Replacement Property first and then once you close, you have 45 days to find 3 Relinquished Properties which then you have 6 months to close that deal. Once you close the Relinquished property, your Qualified Intermediary (QI) will take care of all of the paperwork, and your taxes are deferred. This tool gives you the leverage to enter the market just like any other competitive buyer.Using this tool however also has negatives, and one of them is that you need to financially be able to afford this. You need to be able to financially cover the purchase of the replacement property without using the funds from the sale of the previous property. Another negative is that it will be more expensive for the QI to perform the Reverse 1031 Exchange, that is because there are additional steps to complete the process successfully on your behalf.