A 1031 exchange is a transaction that requires complete care and sensitivity. Determining the ideal residential and commercial property exchange and swap investment asset can be a challenge.
Fortunately, JSG Realty can assist with all of your 1031 exchange needs. With a network of Agents and contacts throughout the Unites States, we are available to assist with identification and brokerage of properties that fit a myriad of criteria.
Residential and commercial property exchange and swap investment properties are a core focus throughout our Company.
Key Residential and Commercial Property Exchange and Swap Criteria
- Identification Period – The 1031 exchange buyer has 45 days from the sale of the relinquished property to identify a replacement holding. The investor must close on the replacement property within a six month time period from the original sale. A 1031 exchange buyer is allowed to identify up to three replacement properties or a variety of properties not exceeding a 200 percent dollar amount of the original relinquished property price
- Amount of Exchange – The replacement property must equal the cost of the relinquished property or else the investor will pay tax on the difference. In certain cases, a buyer will purchase a property that is financially larger than the amount of the 1031 exchange. The investor will secure a loan from a commercial bank to complete the transaction
- Selection of a Qualified Intermediary – A third party exchange intermediary must be involved in the 1031 transaction. This individual or Company must be involved in the identification of the residential and commercial property exchange and swap investment. For a pre-determined fee, the intermediary will assist with the purchase and assist with he identification process
- Replacement Property Desired – An experienced Brokerage Company should discuss potential 1031 exchange options with the investor. Each buyer may prefer a different type of asset. Some purchasers may opt for residential multi-family, while others have a fondness for commercial properties
Moving Quickly on Your 1031 Transaction
Depending on the investment market preferred, some transactions will move faster than others. In a rapid real estate market, Residential and commercial property exchange and swap options can change very quickly. It is important to not only identify a replacement property in a timely manner, but to sign a contract as quickly as possible. Cities such as New York and San Francisco may have limited inventory and property sales transact extremely fast in these markets. Take note of your desired purchase location and proceed accordingly.
Unlike past cycles, in many markets, prices are at an all time high. Double digit cap rates and returns are difficult to find. Those that may be available pose more risk.
To protect the investor, a contract should contain a due diligence period or some other form of potential contingency depending on the scenario. Each transaction will vary. Consult your attorney to assist with contract related matters.
The formula to successful Residential and commercial property exchange and swap investments is to purchase an asset that is not only valuable in the short run, but has room to appreciate in the future. Of course, the location of an investment property is critical. Researching schools, churches, businesses, demographics and other criteria in the area will help determine the viability of the property.
Analyzing the desired return is also important when selecting Residential and commercial property exchange and swap investments. The goal of an investor is always to generate as much net income as possible. However, there must be a sense of realism with the investors specifications. Unlike other purchases, which may place less of an emphasis on time restraints, a 1031 exchange is a different type of transaction. There is a time crunch associated with a 1031 exchange. Time is of the essence for any 1031 purchase.
Residential and commercial property exchange and swap – Areas of Purchase
- Urban locations – Purchasing a property in a large Metropolitan City is attractive because there is typically lots of demand in these markets. Wages are higher in urban areas, while jobs are plentiful. There is always a demand for living space in these locations. However, urban assets can be more expensive and generate a lower yield
- Suburbs – There is still demand in suburban or rural areas. However, rents are typically less and the acquisition of property may be slightly less expensive than City locations. Yields may be higher, but there is the chance of higher vacancy rates
- Highways and Intersections – Commercial property can often be found in suburban markets located on highways and other major corridors. These properties are positioned in highly trafficked areas, creating attractive investment opportunities. Prices may not be cheap either
Investment Analyzation Criteria
Investors will vary in their Residential and commercial property exchange and swap preferences. At JSG Realty, we recommend analyzing the following:
- Capitalization Rate – Also known as a Cap Rate, this formula produces a rate of return on the investment property. It can be calculated by dividing the net income by total expenses. The higher the cap rate, the more annual cash flow the property will produce
- Property Upside – Research and verify the lot size on an investment property. It may be possible to add an addition to the property and increase the value of the investment. This is an important evaluator for any Residential and commercial property exchange and swap asset
- Real Estate Taxes – This important figure is important to analyze. Verifying recent property tax assessments and increases is very important. Investors must understand the risk of these numbers rising in the near future, as it will impact the attractiveness of the property
- Neighborhood Appreciation – Analyzing area comparables will help determine whether the property is being purchased at market rate, below or above. Investors often look at price per square foot in helping to determine whether the property is under or overpriced
At JSG Realty, we have built a detailed process to help you select the ideal residential and commercial property exchange and swap investment property.
Over a series of discussions, we will narrow down and present you with a variety of properties that suit your 1031 exchange needs.
Please contact us for more information and to get started as soon as possible!