With the 1031 Exchange industry transacting at an extremely high volume, there are many real estate exchange services and properties to contact for your purchase. However, it is important to find an experienced Company that has vast experience with 1031 exchange transactions. Simply choosing a family friend or college buddy will not cut it.
Selecting the right individual or team to assist with your 1031 exchange can make all the difference in determining whether your 1031 exchange is conducted properly.
Not all Real Estate Brokers are familiar with a 1031 exchange and while the commission checks can be lucrative, you must make sure the Company assisting with your exchange has experience under their belt.
At JSG Realty, we pride ourselves on walking our clients from start to finish to ensure a seamless 1031 exchange transaction. It takes years of experience in this niche field to become a 1031 expert.
Real Estate Exchange Services and Properties Identification Process
First and foremost, experienced real estate exchange services and properties identification Companies should provide you with the following steps:
- Understanding the 1031 exchange – Every exchange applicant should understand the basic parameters of the 1031 transaction. This is the number one surprise encountered when assisting 1031 exchange clients. Most 1031 buyers do not work in the real estate business. Their career spans multiple industries and real estate has been an investment for them throughout the years. We have also found that numerous 1031 exchange clients have inherited property from other family members and are selling off the property. On occasion, the knowledge base of the exchange client needs education and JSG Realty is here to ensure every customer has a grasp on the entire process
- Choosing a Qualified Intermediary – A QI is a crucial part of the 1031 exchange process. There are many QI Companies and individuals in the marketplace. Choosing Real estate exchange services and property locators can be a challenging process. Selecting an exchange intermediary simply based on cost is not the best strategy. Verify and validate that your QI is experienced in these transactions and familiar with the State of the potential purchase. It may be beneficial to ask your attorney for QI recommendations. They should have a database of trusted vendors to contact. Additionally, a simple Google search should yield positive results. Make sure to read reviews and validate the intermediary. Not all QI applicants are the same
- Selling your relinquished property – Real estate exchange services and property locators should advise on the sale of your original property. While they may not be actively involved in the original transaction, they can help make sure all funds are deposited directly to the qualified intermediary. If this is processed and conducted incorrectly, it will jeopardize the entire 1031 exchange. Many 1031 exchange candidates make the mistake of assuming the 1031 exchange begins after the sale of their relinquished property. However, it occurs prior to their initial transaction and sets the tone for the entire process. Real estate exchange services and property locators can assist with all of this criteria and information
- Identifying your exchange property – A buyer has 45 days from the date of relinquishing the original property to identify a replacement property. There are several different properties a buyer can identify. Make sure to be on top of your 1031 exchange well in advance your 1031 exchange purchase. The time moves very quickly and its important to not only identify properties in advance, but to make sure they are still available and can go into contract immediately
- Closing on your exchange property – The final step in the 1031 exchange process is closing on your replacement property. This entails the selection of a new property and transfer of all funds from the intermediary exchange account. A closing can take place in person and in certain cases, all funds can be wired electronically over the Internet. Once purchase is complete, the 1031 exchange will officially be over
- Leasing of your Replacement Property – At JSG Realty, we like to include a sixth category in the 1031 exchange process. 1031 exchange services and property locators should advise all clients on the days following the purchase of your new property. If there are vacancies at your replacement property and a unit needs to be leased to a tenant, it is the role of the Brokerage Company to find you that renter. The goal is for the property to generate income and the transaction isn’t complete until the 1031 client has cash flow in hand. Additionally, property management may be involved moving forward. A Brokerage Company can offer to assist the client with this service for a determined fee
An Experienced 1031 Exchange Broker Keeps You at Ease
As mentioned previously, as a 1031 real estate exchange services and properties locater, our Real Estate Agents will help keep you calm during the entire transaction. The exchange can create anxiety for various buyers. A time crunch is in place and 1031 exchange purchasers are worried about finding the ideal replacement property. They do not want to pay the capital gains tax and are pressured to find a property within a specified period of time.
Keep in mind, there is often no perfect property. If an investment fits the overall goals of the client, it may be worth pursuing. The risk in waiting for that special property to arise can be slim to none, especially within a 45 day identification window.
In order to make our clients feel at ease, we find that it is essential to continuously communicate with the 1031 client and discuss replacement properties even before the sale of the relinquished properties. Understanding the future purchase and types of investments that are possible will create a sense of calm for all parties.
Remember, a 1031 buyer has 45 days to identify a number of properties after the sale of their relinquished property. There is plenty of time to get to work, but one must move quickly. Working with a Broker that can be trusted and is reliable is an incredibly great asset.
Real Estate exchange services and properties locators should present every client with an assortment of investment properties available for purchase. The 1031 rules state that a 1031 exchange property must like kind real estate. Due to the laid back nature of the law, residential property can be swapped for commercial property or land and vice versa.
Since not all 1031 exchange purchasers are well versed with real estate investments, our brochure of property and detailed walk-through or basic real estate principles and investment criteria will help both savvy and less educated 1031 buyers.
1031 Exchange Property Options
Real estate exchange services and properties that can be identified are widely available across the United States. There are many triple net commercial investments for sale that can make excellent long-term investments.
On the other side, selecting a multi-family residential property with upside in rents is also a possibility. Different investors prefer their own set of criteria. Some are focused on specific regions within the Country and others are more open-minded in terms of property location. The types of exchange properties typically considered are the following:
- Multi-Unit Residential Assets – These types of real estate holdings are usually stable and secure investments. However, its important to verify whether the Apartments are de-stabilized/free market units or are subject to rent regulations. If the latter, there will be restrictions on the rent escalation with strict owner guidelines in place. Depending on the City, a multi-unit building can also possess air rights, which can be very valuable to a developer or investor
- Mixed-Use Properties – This is a great type of asset, as it includes a combination of residential and commercial units. Diversification is created in this scenario and there can be much upside in this type of property
- Net Lease Investments – Many Real estate exchange services and property locators will advise on some form of Net Lease. The categorization of these agreements can vary. There are ground leases, triple net leases, absolute leases and other forms of contracts that can be created between the landlord and tenant. The best type of lease for an owner involves one where the tenant pays taxes, insurance and is responsible for various forms of maintenance on the property
- Single Unit Holdings – Some 1031 exchange buyers prefer simple single unit properties or homes. These are fairly straightforward to rent and maintain.
- Land – Finally, another group of buyers prefer the acquisition to land with the hope of future values rising at a later date in time
In general, Real Estate is a stable and secure investment for the long-term hold. Many investors in the United States place their funds into the Stock Market, which bounces back and forth with great volatility. The positive the stock market provides is liquidity, which can be more challenging in real estate depending on the demand of the property.
However, real estate investment is a stable purchase that typically holds value even in an off-market. Tenants have leases in place and depending on the quality of the tenant, will pay their rent on a monthly basis, especially if corporate backed. Experienced Real estate exchange services and properties identifiers will help you select a credible tenant for years to come.