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Reverse 1031 Exchange

Looking for a fast, flexible financing option for your Reverse 1031 Exchange scenario?

A 1031 reverse exchange is a type of like-kind exchange that allows real estate investors to purchase a replacement property before selling their existing property. This is the reverse of a typical 1031 exchange, in which an investor sells their existing property first and then uses the proceeds to purchase a replacement property.

In a reverse exchange, the investor must work with a qualified intermediary to hold the title to the replacement property until the original property is sold. This allows the investor to take advantage of a great investment opportunity without having to worry about missing out while waiting to sell their existing property.

A 1031 reverse exchange can help investors avoid potential tax consequences associated with a failed exchange. If an investor completes a traditional 1031 exchange and is unable to find a replacement property within the required timeframe, they may be subject to capital gains taxes on the sale of their original property. By completing a reverse exchange, investors can avoid this risk and have more flexibility in their exchange strategy.

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1031 Reverse Exchange – James Dainard

Reverse 1031 Exchange – Rules

Timeframe

Timeframe for completing the exchange: As with a traditional 1031 exchange, the investor has 45 days from the date of acquiring the replacement property to identify the property to be sold as part of the exchange. Additionally, the exchange must be completed within 180 days of acquiring the replacement property.

Qualifying as a Related Party Exchange

If the exchange involves a “related party,” such as a family member, there are additional rules and restrictions that must be followed to qualify for the exchange. Working with a qualified intermediary can help ensure that the exchange is structured correctly and in compliance with the applicable regulations.

Financing

Because a 1031 reverse exchange involves purchasing a replacement property before selling the existing property, investors may need to secure financing to complete the exchange. This can be challenging, as traditional lenders may be hesitant to provide a loan without the assurance of the sale of the existing property. Working with a hard money lender, such as Intrust Funding, can be an effective way to secure financing quickly and with more flexible terms.

Qualified Intermediary

Working with a qualified intermediary is crucial when completing a 1031 reverse exchange. The intermediary must hold the title to the replacement property until the investor is able to sell the existing property and complete the exchange. This requires careful planning and execution to ensure that the exchange is completed within the required timeframe and in compliance with all applicable regulations.

A qualified intermediary can also help with the complex paperwork and other logistics involved in the exchange process, including the transfer of title, coordinating with the investor’s attorneys and accountants, and ensuring that all funds are properly held and disbursed.

Reverse 1031 Exchange Example

A real estate investor in Washington state has identified a great investment property that they would like to purchase, but they haven’t yet sold their existing property. The investor is concerned that the new property will be sold before they are able to sell their current property, so they decide to use a reverse 1031 exchange.

In a reverse 1031 exchange, the replacement property is purchased before the original property is sold. To complete the exchange, the investor must work with a qualified intermediary to hold the title to the replacement property until the original property is sold.

However, the investor doesn’t have the funds available to purchase the replacement property outright. They decide to work with a hard money lender, such as Intrust Funding, to secure a loan for the purchase.

Intrust Funding is able to provide a loan for the full purchase price of the replacement property, which allows the investor to complete the reverse 1031 exchange.

Thanks to the reverse 1031 exchange and the hard money loan, the investor is able to secure the new investment property before it is sold to someone else, without having to wait for the sale of their original property. They can continue to grow their real estate portfolio and take advantage of new investment opportunities without having to worry about missing out on a great deal.

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