The concept of a 1031 exchange is just great, of course, but it sure seems implemented in a funny way.
Within 45 days of the sale of my property I have to make a list of properties I’m interested in. Then, I have six months to commit to buying one or more on my list.
The problem is it that it can take soooo loooong to find a park that i’m willing to buy! My mentor told me he allows a year between when he starts seriously looking to when “the park” comes along.
So, when the right park comes along, I tell the seller I want it, but then I have to put my three real estate investments (2 houses, one park) on the market. Who knows how long it’ll take to sell those!
Uncle Sam, why not let me sell my properties, have an intermediary hold the proceeds for however long I need, then when I find “the park”, he’ll release the funds, and we’re done. The lousy interest rate I’d get while the funds are held would be good motivation for me to find the next investment. Why does the government care how long the funds are held?
Anyway, I’m done venting. I just don’t know why the government doesn’t talk to me before passing these laws.
The best solution to my dilemma seems to be to put some cash down to get a seller to hold a property while I’m selling mine, then 1031 my sale proceeds over to the seller. Right?
Those of you who have done a 1031, how did it work out? Any tips/tricks/suggestions?
The reality is that many professional investors may not be trusted to ever actually make the final investment. Oviously the government wants a system that controls the cheaters.
A better system, and one that would be the fairest for all, is for the seller to pay the full tax at time of sale and then have it refunded when they purchase their next property.
Paying the full tax is what a seller would expect to do if not reinvesting and therefore is not disadvantaged and if there is a system in place where the refund was timed to coincide with the new purchase the money would be there to use to pay down the purchase. Win/Win
It’s been a while now and was wondering if you have an update. My wife and I are in the same situation where we’re looking to 1031 exchange a condo that we own to our first MHP. Have you bought your first park? If so, what is your impressions of the 1031 process? Did you look into the Deferred Sales Trust as mentioned by Jefferson?
No, no update. I’ve not pursued the 1031 because we’re okay with our rental properties for now. If California shuts down for lack of water, then we’ll panic.
I think I might know what Mike is thinking if it’s the same as my thought. Get a hard money loan for your replacement property then do a reverse 1031.
I just completed a 1031 and it’s very hard the conventional way with severe, strict time limits that may pressure you into the wrong property because of the time limits.
Purchasing the replacement property first can really alleviate some of the time pressure.
Jefferson, have you invested in one of these deferred trusts. The idea was presented to me when I recently sold a property but I didn’t go for it.
I am interested to know if anyone recently completed a 1031 exchange. I almost had it but then seller had problem of not being able to find another property.
It sounds like a great monopoly building idea but not that easy.
I looked into a deferred trust and passed, but honestly can’t remember why.
I recently completed a 1031 exchange. It requires a lot of hard, fast work but can be done. Just remember that you can’t settle on just any property to complete the 1031. If you can’t find the right property, you just pay the tax like you would have anyway. Not the end of the world. The big downside though is they may hold your money for 6 months if you don’t complete it, just keep that in mind.
I was in a same situation before and I was unable to find a same kind of property finally had to pay tax.i am tring to sell my property in a auction in November so I am looking to find the property to do the 1031 exchange.my email is subhash55@msn.com
thanks
I just completed my first 1031 exchange. I was selling a park, and coincidentally had a second park under contract at the same time, thereby setting up a perfect 1031 exchange. I’m glad I did the exchange, but honestly I don’t think its a total ‘slam dunk’ even when the stars align. Here are some of the numerous disadvantages of a 1031 I experienced:
-It takes time that could be spent doing other things and searching for other deals/running your properties more efficiently.
-It costs a decent amount of money
-It complicates the transaction, and you run a risk that something gets screwed up somewhere that wouldn’t have been messed up in a simpler transaction. If your 1031 exchanger is slow or drops the ball at any point it can mess up the transactions.
-You have less access to your cash and less flexibility, depending on how the transaction is structured. If the deal falls through, or your new purchase is smaller than your sale, your money is tied up for a while.
-Tax rates are more likely to go up than down.
-You have to keep your LLC and transfer it over to the new state, rather than shutting down your LLC and forming a new one. You now have additional liability should someone come after you for items related to your old park.
This is a totally subjective calculation, but for me personally I would do a 1031 exchange if my sale and purchase happened to align again, but there’s no way I would try to force through a new purchase I didn’t have lined up just for 1031 purposes, or do anything overly fancy to get at a 1031. I’m in the minority on this one though, and to each his own.
We have completed numerous 1031’s. Think about this–why are we taxed on the money we already paid taxes on and most of the time the increase in dollars are mostly inflation and WHY are we paying taxes on being good business owners. What is the incentive to work smart to end up paying over 25% in taxes and probably tomorrow closer to 40% to keep the parasites quiet and vote for the democrats. The government never creates jobs or wealth but is presently redistributing the wealth from one group to another and is not called robbery but with our government Ponzi schemes we are quietly taking in the gut when we should be giving it to them in the butt. In our last transactions our area of possible deals was much greater than mobile home parks and sometime in the future when we find a good deal would sell or trade our farmland with a seller and then both parties win. The farmland requires no management time and is a great deal for a park seller since their are ways he will pay no capital gains but still gain about a plus 7% return plus increase in value of land, If any park owner wants to try that angle and pay NO taxes contact me at 918-314-4574.
I’ve only done one, and its more likely I wasn’t advised well by my company. I think mine cost $900, which isn’t a lot, but it causes a little damage since taxes aren’t being saved, just deferred.
Everyone, thanks for the great advice. Yes, my main concern is the added complication. We’re currently looking into the deferred sales trust for that reason. We still haven’t put a park under contract yet but am optimistic that we will find one. We’re planning on stepping up our search even before attending boot camp in January.
@Coach62 just in case we decide a DST isn’t a viable option, do you mind sharing what company went through for your 1031?
Our qualified intermediary cost less than $400 and was very informative of present requirement–do’s and don’ts’s. We kept the old LLC and are continuing to use it.
I used First American because they are the largest and safest in my opinion. Do not use a cut rate 1031 intermediary, what happens if they run off with the funds? Trust me, it’s happened. I can’t remember what they charged, it was well under $1,000.
She also advised on on some changes in the HUD statement to further save in taxes, she basically just moved some money from one column to another.
Please keep us up to date on the Deferred Sales Trust and the details.
Khristen Pello
Exchange Assistant
First American Exchange Company, LLC
300 Mariners Plaza Drive, Suite 301, Mandeville, LA 70448
Direct: 504.539.5922
Main Ofc: 504.539.5933
eFax: 714.824.4336
Email: kpello@firstam.com
Web: www.firstexchange.com
@Coach62 thanks for the info. After speaking to a couple financial advisors I believe DST may be good for seller financing as the DST payout in monthly payments. It’s not good if you need a lump some for a down payment – in this case a 1031 is probably a better option.