What is a 1031 Exchange?

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

1031 tax deferred exchange is a way to postpone capital gains or loss from a sale of property through purchasing another like-kind property within a certain time frame. Although there are several kinds of 1031 exchanges, the Delayed Exchange is the most common.  

“Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.” http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

Through the 1031 tax deferred exchange program, property investors are able to reinvest the sale proceeds into another property of equal or larger value.  This has been a common platform property investors have been using over time to create great wealth.

Before the property is sold, escrow will make the necessary arrangements for the 1031 exchange.  At the close of escrow, the proceeds from the sale will be transferred to an Accommodator also known as a Qualified Intermediary.  (A Qualified Intermediary is an independent party who facilitates tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. The QI cannot be the taxpayer or a disqualified person.) http://www.1031.org/about1031/faq.htm

The investor will have 45 days from the date the downleg(relinquished property) is transferred to identify potential exchange properties. There are several different rules on property identification but the 3-property rule seems to be most popular. Within 180 days from the close of escrow of the downleg, one of the three identified properties must be purchased.

Most investors selling their investment property will begin looking for an exchange property from the moment they put their own property up for sale. So in general, if the sale property takes approximately 90 days to close escrow(30 days of marketing & 60 day escrow), they would have additional time to identify several replacement properties and close escrow on the upleg(replacement property).   

Here is a great place and resource to learn more http://www.ipx1031.com/reexchanges.aspx

The Loyal And Wise Commercial Real Estate Investor

There is a difference you know between the loyal and wise investor. I just finished a conversation with an older gentleman, probably in his 80's and owns about 5 industrial properties in the valley.  But before the conversation could develop much further he said, "I work with x#$%^, in fact Eric I can't even give you my middle name without x#$%^ being involved.  He was probably too old to want to do anything in real estate anyways. So I moved on... 

I once heard from a very successful real estate investor in Los Angeles say (Portfolio of an excess of $500 million), "You want to know as many brokers you possibly can."   It's pretty simple; you never know when they will bring you the next bet opportunity FIRST. Should I remind you it's the broker who's on the frontline looking to uncover the property with the right story.  You always hope that when they find an interesting deal, they will immediately think of you first.

The best deals never hit the market and that's a fact! 

There are occasions when you find that one investors who will not do a deal without their own Broker and believe me they are far and few between. And most of the time there is something mentally wrong with them. There is however, a successful investor I know out there (Owns in excess of 50K multi-housing units) who has loyalty to a broker.  He's in a category by himself, and like I said mentally wrong.  But most of the deals that are executed by that one loyal investor would have already been shopped around by everyone else by the time it came to them.  They start to get that reputation. "The guy who's married to so and so". Oh, and please don't remind me of the investor who says his relative has a real estate licenses and wants a piece of the pie. Are you kidding me....

I truly believe loyalty if acted upon correctly is vital to succeed in the business, but any investor looking to grow their portfolio needs to be the wise about it.