Many people are unaware that they have a legal time frame in which to purchase a 1031 exchange replacement property, so it’s important to consult experts on this type of transaction to get the right. Bob Nelson of Pacwest Real Estate Investments and René Nelson of Pacwest Commercial Real Estate discuss the details in this episode.
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I’m René Nelson CCIM with Pack West Commercial Real Estate, and I’m a real estate investment broker.
I’m Bob Nelson, also a CCIM and a counselor of real estate designated CRE, and I’m also a real estate investment broker. I tend to specialize in tax deferred exchanges. You also have a specialty you’d like to mention?
Straight Talk About the Benefits of Tax Deferred Exchanges
René Nelson: I like to do multi-family. I find that a lot of my multi-family clients, when they go to sell, they do like to do tax-deferred exchanges. There is a little bit of misnomer about tax-deferred exchanges Bob, and the benefit. Why don’t you talk about that for a couple of minutes? Let’s just tell them the benefits.
Bob Nelson: We’ve had a tremendous run up in value over the last five to six years in income producing property. I guess we can stick to apartment complexes for right now, to be particularly specific. There are situations where people are saying, “You know, I’ve run a tremendous amount of equity into this property. I’d like to harvest that equity and, maybe, move it to a different type of asset or a bigger apartment complex or maybe two or three properties because I’ve got two or three heirs that I’d like to start thinking in terms of leaving things to.” We can, at that particular point, create a transaction that is referred to as a 1031 tax-deferred exchange whereby, we can sell the property that you have and, in a very timely manner and, this is the key, a very timely manner find the replacement property so you’re not hanging out to dry.
If you go very long, you will be paying the capital gains tax. Our capacity, or our strength, is finding those replacement properties and getting them under contract, potentially prior to the time that you’ll actually sell your relinquished property and that’s the key to what we do. We know exactly what needs to be done, we know how to do it so if you are in a position where you’ve decided, “I would like to go out of this one and into a different asset food group,” or a different property or more properties, we have the capacity to structure that transaction and take you from point A to point B.
René Nelson: I think you bring up a good point, also, in regard to exchanging. It’s really important to find the replacement property before you sell the property that you want to relinquish or get rid of. You really want to find the property that you want to go into first. What we frequently find is that there is some analyzation that needs to be done on that property. We always like to look at a seller’s tax returns if possible, but we may not get that upfront preliminary.
The Advantages of Working With a 1031 Exchange Expert
Bob Nelson: Well, if they’re working with us, they will provide what we need in order to come up with a creative strategy, and if it gets to be too secretive and not give us anything, I’m not willing to take the liability of taking on those sensitive transactions where the investor has a fairly high tax consequence. They’re either on our team or they aren’t. We work on an exclusive basis.
If we’re dealing with an individual, we want to be the only broker that’s dealing with that individual, and if somebody else would like to present something, they present it through us so we can do the analysis work and identify the true investment benefits prior to the time we start wasting our time because a timed transaction like a 1031 has a huge time schedule. You violate that time schedule, you pay that tax. You’re absolutely right, they can’t find decent replacement property on their own, quickly enough, to make a 1031 safe transaction.
René Nelson: Absolutely. That’s one of the benefits that we bring to our clients, both buyers and sellers, is having the connections on a national level with other CCIMs and counselors of real estate and the ability to help you analyze the numbers to make sure you’re making a smart investment.
Bob Nelson: That’s exactly what we specialize in. We like to be accurate 100% of the time. That’s difficult to do unless everybody’s pulling on the same end of the rope and we know what our time frames would be. If you expect top quality service, we need to have those time frames in advance of the time that you are going to potentially sell the property that you own so that as that happens, we can have a perfectly linked transaction.
René Nelson: Absolutely. In the next video Bob, let’s talk about how you prepare your property to get ready to sell and the investment strategies there.
Bob Nelson: Okay. Makes sense to me.
Bob Nelson of Pacwest Real Estate Investments has all the answers to your questions about 1031 exchange replacement property. Give him a call today! 541-485-8100