Why Would You Use a Reverse Exchange?
The investment real estate market has changed considerably over the last few years, and should continue to do so over the next couple of years, especially in the commercial real estate market segment. The inventory of real property on the market today has increased significantly due to the dramatic increase in the number of distressed property transactions such as foreclosures, deeds-in-lieu of foreclosure, short sales and fire sales.
While the changes are certainly painful to those who are losing their properties through distressed asset sales, the changes are also creating dramatic investment opportunities for real estate investors who are able to move quickly.
Real estate markets like today make planning, structuring and coordinating 1031 exchange transactions even more complicated and challenging. It can also make you feel like you have lost control of your 1031 exchange, especially when you must move considerably faster in order to take advantage of the investment opportunities being presented today.
Take Advantage of Investment Opportunities Quickly with a Reverse Exchange
Reverse Exchanges put you back in control of your 1031 Exchange by helping you move quickly in order to take advantage of today's investment property opportunities. You no longer have to worry about selling or coordinating the sale of your relinquished property first. You can set-up, acquire and close on the purchase of your replacement property immediately, and then worry about listing, marketing and selling your relinquished property later.
Regain Control of Your 1031 Exchange With a Reverse Exchange
The Reverse 1031 Exchange can also alleviate some of the risks associated with structuring your Forward 1031 Exchange transaction in ever evolving and challenging real estate markets such as this. You can take as much time as you need to locate and acquire suitable replacement property first with out worrying about the 1031 Exchange deadlines associated with a Forward 1031 Exchange. You can then focus on listing, marketing and selling your relinquished property later since you have already acquired your like-kind replacement property through a Reverse Exchange.
One of the most difficult challenges with a Forward 1031 Exchange is meeting the required 1031 exchange deadlines. However, when you acquire your replacement property first through a Reverse 1031 Exchange your 45 calendar day identification period is generally not an issue.
Reasons to Use a Reverse 1031 Exchange
There are many reasons why you might find yourself in a position where you must acquire or would prefer to acquire your replacement property first before the sale of your relinquished property using a Reverse Exchange. Some of the reasons include:
Perhaps you just want to eliminate the stress (and risk) involved with the stringent and restrictive 1031 exchange deadlines by taking advantage of the reverse exchange strategy and acquiring your like-kind replacement property first.
Or, you might unexpectedly stumble upon an investment opportunity that you must acquire and close on before you even have time to consider selling your relinquished property.
The sale of your relinquished property may unexpectedly collapse and you may not want to risk losing your like-kind replacement property and must therefore proceed with the acquisition as part of a reverse exchange transaction.
Institutional investors often structure each and every acquisition as a reverse exchange and then subsequently decide whether they will sell and match any relinquished properties as part of their reverse exchange. Many investors have switched to this reverse exchange strategy exclusively in order to provide them with more flexibility when structuring real estate acquisitions.
Reverse Exchanges Can Also Reduce Your Risk
Regardless of your reason, you can reduce your risk by using the Reverse 1031 Exchange because you acquire your replacement property first, and then you have 45 calendar days to identify which relinquished property you intend to sell, and you have another 135 calendar days for a total of 180 calendar days to complete and close on the sale of your relinquished property in order to complete your Reverse Exchange transaction.
You only have to worry about selling your relinquished property within the prescribed 1031 Exchange deadlines once you have acquired and "parked" title to your replacement property with your Exchange Accommodation Titleholder as part of your Reverse 1031 Exchange.
Should your relinquished property not sell or close prior to the end of your 180 calendar day deadline, you do not have any income tax consequences to worry about because your relinquished property has not been sold! The Reverse 1031 Exchange would be collapsed and you will end up owning both properties, but you will not have any income tax liabilities to worry about since you have not sold your relinquished property.
You can learn more about Reverse Exchanges by reading our articles entitled Overview of Reverse Exchanges and Introduction to Reverse Exchanges for more complete and in depth information on Reverse 1031 Exchange transactions. You are always welcome to contact Exeter Asset Services Corporation for assistance with the planning, structuring and implementation of your reverse exchange strategies.
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