All about the 1031 Exchange
There are generally four types of exchanges that benefit the Real Estate Investor. They are:
- Delayed
- Simultaneous
- Build to Suit
- Reverse
There is also a method of exchanging personal property, which is usually the case in the sale or acquisition of a business.
The most common exchange is the Delayed exchange. In transacting a delayed exchange, an investor must identify up-to 3 replacement properties, or more if the total value of the replacements do not exceed 200% of the relinquished property.
There is a time limit to do this, in order to qualify as a valid exchange. (currently 45 days after close of escrow on the sale of the relinquished property) The investor then has 180 days to close escrow on the acquired property.
The second most common exchange is the Simultaneous exchange. In this exchange, both properties are transferred concurrently. This is a complicated process, and it is wise to enlist the help of an intermediary. The simultaneous exchange is deceptively complex and is not as simple as closing escrow on the same day.
Next on the list is the Build to Suit exchange in which an investor may build new construction or modify or otherwise improve a replacement property. Again, there are time constraints and complex rules that complicate this type of exchange. It also tends to cost more, as there are fees which must be paid up front by the investor. There are many issues to consider prior to entering into this type of exchange. You should seek professional consultation and representation during all phases of this exchange.
Definitely, the most complex exchange is the Reverse Exchange, which allows an investor to acquire a replacement property prior to the sale of the relinquished property. The caveat of course is that the investor is NOT ALLOWED to hold TITLE to both properties at the same time. As with a simultaneous exchange, an intermediary is essential to ensuring a valid transaction.