Hi Board contributors! I wanted to run something by you guys, since it sounds either wrong or crazy to me. I just found a great piece of property that I would love to buy, and my realtor is telling me I can buy this property as part of an exchange BEFORE i actually sell the property I'm trying to get rid of?? How can I do an exchange if I don't have the money from selling my property first? It doesnt seem to make sense. The other thing I think sounds a little off is that the price I was quoted was really expensive.... I saw your post saying an exchange normally costs around 500-1000 dollars, but this is supposed to be like 8000 dollars or something?? Is this a legitimate deal?

Yes, it is absolutely possible. 

Your realtor is referring to a reverse 1031 exchange transaction where you can acquire your like-kind replacement property first and then you have 45 calendar days to identify what property you are going to sell ("relinquished property") as part of the reverse 1031 exchange and 180 calendar days to actually sell and close on the sale of your relinquished property. 

It can be a very effective strategy when trying to structure tax-deferred exchange transactions.  You can visit http://www.exeter1031.com/reverse_1031_exchange_overview.aspx for more complete details. 

The fees are very different from regular forward 1031 exchange transactions because the Qualified Intermediary must acquire and hold, or park title to your property and it exposes the QI to potential liability.  The reverse 1031 exchange is also much more time consuming than a regular forward 1031 exchange transaction.  Most good institutional qualified intermediaries charge some where between $5,000 and $7,000 for a reverse 1031 exchange transaction, which should include the cost of setting up, maintaining and ultimately dissolving a limited liability company just for your transaction. 

As Bill said, you are referring to a reverse exchange.  And, as Bill discussed, there are substantial additional fees when using a reverse exchange.  However, you touched on what may be the most difficult part of completing a reverse exchange; you need to have the money to acquire the replacement property before you have sold the relinquished property.  For many investors this is a show stopper.  However, if you have sufficient cash from other sources and/or have adequate borrowing capacity, a reverse exchange can be an effective tax-deferral tool.

Jim

Jim brings up an excellent point. 

The biggest challenge with the Reverse 1031 Exchange is that your equity is still trapped in your relinquished property that you are attempting to sell and you need to have another source or means of temporarily funding the acquisition of your like-kind replacement property that you intend to acquire as part of your Reverse 1031 Exchange transaction.  However, there are times when you must acquire your like-kind replacement property first (or in many cases you might just prefer to acquire your like-kind replacement property first) or lose the opportunity.  In any event, should you choose to use the Reverse 1031 Exchange strategy, there are a number of ways to temporarily fund the acquisition of your like-kind replacement property as part of your Reverse 1031 Exchange, including:

(1) You can advance or lend personal funds to your Exchange Accommodation Titleholder (EAT)(1031 Exchange Parking Entity owned by your 1031 Exchange Qualified Intermediary) if you have the liquidity to do so; or,

(2) You can draw down or borrow funds from a line of credit (either an unsecured line of credit or secured by another property) and then advance or lend these funds to your Exchange Accommodation Titleholder (EAT); or,

(3) You can refinance or borrow against any other property that you might have to obtain the necessary funds to advanced or lend to your Exchange Accommodation Titleholder (EAT); or,

(4) You can find a lender that is willing to lend funds directly to the Exchange Accommodation Titleholder (EAT) on a non-recourse basis and guaranteed by you as the actual borrower.  This loan can be secured by any property including the relinquished property and/or the like-kind replacement property on a single or cross-collaterralized basis.  It will usually require a portfolio lender, hard money lender, or private lender.  Conduit lenders that make loans and then sell the loans on the secondary market will not touch these loans.

Mr. Exeter,

I'm in the middle of a 1031 reverse like kind exchange right now.  I am not using Exeter (sorry, did not know about you until i found this bulletin board), but could sure use some help.  I have been trying to find a lender that will work with me on a 1031 reverse so that my facilitator can hold my buy property.  Can you provide me with a list of lenders that you have worked with?  I am in Florida but the properties are in California.  I would be eternally grateful.

Yes, we have worked with a number of lenders that are comfortable with lending on reverse 1031 exchange transactions as well as build-to-suit (improvement or construction) 1031 exchange transactions.  You can email me, IM me or call me and I can get a copy of our referral list to you.

Hi Jack,

I am following up to see if you were able to work out your financing needs for your reverse 1031 exchange transaction.  Let us know if we can be of assistance.  We have a number of lenders that can work with your California properties and do not have an issue with the fact that it is a reverse 1031 exchange transaction.

Mr. Exeter,

Yes, thank you.  The referral list that you emailed to me gave me the contact that I needed.  We are moving forward.  Thank you again.