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  • Writer's pictureJosh Taylor

Making Waves in Real Estate: The Reverse 1031 Exchange Explained

Alright, let's talk shop. You've heard of the 1031 exchange, but have you caught wind of its nifty cousin, the reverse 1031 exchange? If you're eyeing a new property and want to sell before buying, this could be your ticket.

What's the Deal with Reverse 1031?

In simple terms, it flips the usual 1031 exchange on its head. You buy first, sell later. Perfect for those with a specific property in mind.


How It Works:

  1. Secure Your New Property: Say you've got your sights set on that dreamy boutique hotel. No need to wait – you secure it first.

  2. Stash Your Current Property: Think of your existing properties like surfboards on a rack. With the help of an intermediary, you park them while you sort out the sale.

  3. Sell at Your Pace: No rush! You've got up to 180 days to sell your old properties without the pressure of a ticking clock.

  4. Seal the Deal: Once your old properties are sold, the intermediary handles the final swap. Your parked property officially becomes yours.

Important Note: Financial Preparedness is Key

First and foremost, the Exchangor needs to have the financial ability to purchase the replacement property. Remember, the Exchangor will not have the benefit of sale/exchange proceeds since the relinquished property has not yet been sold. The Exchangor must draw upon other financial resources for the acquisition.


Why Does It Matter?

It's all about flexibility, mate. This setup lets you grab opportunities without the stress of tight timelines. It's like choosing when to paddle into that perfect wave.


The Pros and Cons:

Pros:

  1. Flexibility: You have more time to make strategic decisions without the pressure to sell quickly.

  2. Property Control: You can secure your new property without worrying about timing conflicts.

Cons:

  1. Complexity: It's not as straightforward as a standard exchange and may require more legal and financial wrangling.

  2. Costs: There can be higher intermediary and legal fees associated with a reverse exchange.

In a Nutshell:

For savvy investors like you, this can be a game-changer. It's akin to finding the perfect wave – it takes skill, timing, and a bit of strategy.

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