1031 Exchange

Many real estate investor are aware of the money saving power of a 1031 exchange, and how it allows one to transfer their captial gains taxes from the sale of a property, into another like-kind property. But it isn’t possible to use the money from your exchange to pay the debt on an investment property that you already own – and likewise, you can’t build improvements on land that you own with a 1031 exchange.  Making improvements on land already owned is not a qualifying like-kind 1031 exchange, and can be a trap for the unacquainted taxpayer.

What you ultimately want is to take the 1031 exchange proceeds, purchase new land and have it built to your specifications, i.e., you get the built structure you want and purchase a replacement-property that is worth the same amount (or greater value).  So how can you do this?

There is an option called “the poor man’s build to suit exchange” wherein the buyer requests that the seller make the desired improvements to the structure prior to the completion of the sale. For example, an investor (after selling her investment property) – wants to buy another property to replace it – for an equal or greater value.But the replacement property is only worth about k, which isn’t enough to qualify as a “like kind” exchange, and therefore not “transferable” under 1031.

In this scenario, the investor would ask the replacement property seller to increase the sales price to 100 thousand dollars, and before closing, the seller will have to construct 90 thousand dollars worth of improvements to the property. After all is said and done, she’ll purchase a replacement property or the same value, which is 0,000.

Finding a replacement property seller who is willing to increase the sales price, and make improvements before closing, may be difficult.  One other approach to this is to have the QI (or qualified intermediary) purchase the replacement property for ,000 – then take the title into an LLC that is owned exclusively for the purpose of a 1031 exchange, and use the remaining money from the exchange to make improvements to the replacement property.

So likewise, your QI can fund the improvements during their construction, holding the property for you and paying for everything with the proceeds from the exchange. The investor will receive the property from the QI when the improvements are completed on the replacement property, thereby completing the exchange.

Consider the following things when you attempt to use a build to suite exchange. First, the 180-day requirement in order to complete a 1031 exchange does not allow sufficient time for an elaborate Build to Suit.  But, this should be enough time to rehab and update an already standing building.

2nd, any updates made to the replacement property must be considered, “real-estate” to actually be part of a “like kind” exchange, i.e., real estate for real estate. Simply dropping off some building materials on location is not acceptable; to constitute “real estate” your supplies must literally be attached to the building as a permanent part of the structure or affixed into the land that it is on.

Stay focused on the final outcome, avoiding any difficulties, and you’ll get all of the great benefits of a build to suite tax exchange.

Real estate investing probably makes you think of a number of things (like short sales). Depending on how familiar you are with real estate investing already, you might think of real estate portfolios and real estate retirement plans, or you might focus on short sales, bulk reo investing and virtual real estate investing. Likely you also wonder how these things will factor into your life as a real estate investor in the current economy.

You will need to know a lot about real estate investing. To get the most out of real estate investing education, be familiar with basic information ahead of time. No matter whether you are interested in short sales, bulk reo sales, virtual real estate or just enhancing your knowledge as a real estate investor, knowing some real estate investing basics will help you succeed. Here are three main real estate investing concepts that many experts do not even know:

1. You will always end up with a positive yield when you invest in real estate investing education. Every real estate deal has the potential to create thousands of dollars in potential wealth. Knowing how to get that wealth is the key to success. Knowing more about real estate betters your odds of success when you do a real estate deal. A small investment in education has the ability to yield big results when it is implemented.

2. You can succeed in real estate investing regardless of the state of the economy. Many people think (wrongly) that you can only succeed in real estate when the economy booms. In fact a bad economy is not a bad economy for real estate investors. You can often buy properties at deep discounts. You could also locate deals that would not exist in a booming economy. Real estate investing may also turn the tide for a poor economy. Short sales, bulk reo sales and virtual real estate all can thrive when the economy is not. You can save yourself and others from major financial woes if you know how to do these deals.

3. You do not need lots of your own cash to be a successful real estate investor. You can be a success in real estate investing no matter how much money you have on your own. There are a lot of deals that you can do with other people’s money. Private lenders will lend you their money if they think you are a good investment. A good investment will know as much as they can about real estate investing. This will help you show private lenders that you are a good investment if they do not know about real estate investing themselves.

Real estate investing is a great way to create a good amount of wealth. You can create income regardless of the economy. You can create success for yourself using knowledge of real estate investing, short sales, bulk reo sales and virtual real estate. Knowing the basics of real estate investing will help you succeed as a real estate investor.

Real estate investing probably makes you think of a number of things (like short sales). If you are already familiar with real estate investing you may think of short sales, bulk reo investing and virtual real estate investing or you may think of it in terms of real estate portfolios and real estate retirement plans. You may also wonder what type of role these things can play in your life as a real estate investor in different types of economy.

You can learn a lot about real estate investing. The best way to get the most out of your real estate investing education is to be familiar with some basic information ahead of time. No matter whether you are interested in short sales, bulk reo sales, virtual real estate or just enhancing your knowledge as a real estate investor, knowing some real estate investing basics will help you succeed. Here are three main real estate investing concepts that many experts do not even know:

1. Real estate investing education always yields positive. You can create thousands of dollars in potential wealth with each real estate deal. Knowing how to get that wealth is the key to success. Learning about real estate increases your odds of success when you do a real estate deal. Implementation of your small educational investments yields big results.

2. Real estate investing success is possible in any economy. Lots of people believe that real estate success is only possible in a booming economy. Actually a poor economy is not a bad economy for real estate investors. You can often buy properties at deep discounts. You could also locate deals that would not exist in a booming economy. Real estate investing may also turn the tide for a poor economy. When the economy is not so good, short sales, bulk reo sales and virtual real estate are great. You can save yourself and others from major financial woes if you know how to do these deals.

3. You do not need to have a great deal of money if you want to be a successful real estate investor. You can succeed in the real estate investing arena no matter how much money you are working with. There are lots of deals that you can use other people’s money to do. If you are a good investment private lenders may let you use their money. An investor who is a good investment knows as much as they can when it comes to real estate investing. This will enable you to show people who have money for real estate investing but may not know how to use it that you are a good investment.

Real estate investing is a great way to create a good amount of wealth. You will be able to create an income no matter what the economy. You can create your own success using your knowledge of short sales, real estate investing, bulk reo sales and virtual real estate. Real estate investing basic knowledge will help you succeed as a real estate investor.