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.
William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC
A Qualified Intermediary (Accommodator) for 1031 Exchanges
Exeter Fiduciary Services, LLC
A Private Professional Fiduciary Services Company
Exeter IRA Services, LLC
Third Party Administrator for Self-Directed IRAs 1031 Tax Deferred ExchangesSelf-Directed IRAsPrivate, Professional Fiduciary Services