by Prince Licaylicay | Nov 2, 2021 | 1031 Exchange, All Articles, Buying, Investing, Selling
The concepts on real estate investing can be tricky, especially if you don’t know the basics of each. Here, we have rounded up information about 1031 Exchanges vs. Delaware Statutory Trusts (DST).
Real estate investing has some advantages to boast, such as:
- The use of leverage to increase returns;
- Significant tax advantages from “non-cash” expenses such as depreciation;
- The ability to defer capital gains taxes to the use of the 1031 like-kind exchange have long made real estate an attractive option for investors.
What is a 1031 Exchange?
1031 exchanges refer to the IRS code that provides the law and specific requirements regarding “like-kind” transactions. Like-kind transactions allow real estate professionals to grow and diversify their portfolios, with limited federal income tax implications. To qualify under Section 1031, there must be an exchange of real property held for the productive use in a trade, business or investment solely for property of a like-kind for practical use in a trade or business or investment.
Investors have turned to 1031 exchanges to defer their capital gains taxes, as well as additional tax liabilities, which, in some states, include state capital gains taxes, Affordable Care Act surtaxes, and depreciation recapture taxes. 1031 Exchanges may permit real estate investors to perpetually defer these taxes provided that they continually reinvest capital back into other forms of real estate. In fact, the IRS allows subsequent exchanges each time a property is sold, which allows an investor’s equity to continue growth potentially. At the same time, be tax-free unless such investment is alienated, transferred, or sold.
What is a Delaware Statutory Trust (DST)?
A Delaware Statutory Trust is a mode of real estate investment that provides individuals with an avenue to commercial investment properties that can be significantly larger than what they could acquire on their own. These properties are often the same type and quality as those purchased or owned by large institutional, corporate, or government investors, such as pension funds, insurance companies, or REITs.
DSTs provide 1031 exchange eligibility for individual investors upon entry and exit, a benefit not commonly available to other co-ownership structures. Moreover, DSTs can also provide tax-advantaged monthly income, which could be fully sheltered from income tax liabilities. Simply put, DSTs are professionally managed passive investments. They cover a wide range of property types, including, but not limited to the following:
- Industrial Buildings;
- Multi-Family Apartment Complexes;
- Self-Storage Facilities;
- Medical Offices and other similar types of commercial estates.
It is vital to note that Delaware Statutory Trusts are viewed as securities under Federal law and qualify as a like-kind exchange under Section 1031 of the IRS tax code.
Advantages of Delaware Statutory Trust (DST) 1031 Exchanges. Delaware Statutory Trust (DST) 1031 Exchanges offer many benefits to Investors. The following are its advantages:
- 1031 Exchange Eligible. DSTs are customarily viewed as securities under the federal securities laws. Hence, they are treated as direct real estate ownership under Section 1031 of the IRS tax code. Accordingly, the DST investments are eligible for 1031 exchanges both when it is initially invested and when it is liquidated.
- Institutional-Grade Assets. DSTs are compartmental or co-investment properties that allow numerous 1031 investors to acquire equity ownership interests in significant, high-quality assets that would typically be out of reach. By exchanging into a Delaware Statutory Trust and merging equity with other co-owners, 1031 investors can own a portion of an institutional-grade property that is significantly larger than what they could ordinarily purchase on their own.
- Opportunities for Diversification. Since a person can choose the amount to be invested in a Delaware Statutory Trust, he can split his investment between and among multiple DST properties, thereby allowing the opportunity to diversify his real estate portfolio and, therefore, lessen the risk of a loss.
- Earn normal distributions. Delaware Statutory Trusts are allowed to keep a reasonable amount of cash reserves to be prepared in case of a contingent event that would necessitate repairs or face unexpected expenses. However, all earnings and proceeds above the reserve amounts must be appropriated to the beneficiaries on a routine basis and within an expected period.
- Sizing. One of the challenges for 1031 exchange investors is finding like-kind replacement properties that closely match the value of their alienated or transferred assets. If replacement properties are too small or too large in value, investors may be left with excess, and therefore, taxable funds. However, DSTs allow an investor to invest a definite and exact amount necessary to satisfy exchange requirements.
- Non-recourse Debt. Mortgage financing is already in place when a DST includes debt. The loan, however, is typically non-recourse, i.e., the investor’s assets outside the loan are protected.
Disadvantages of Delaware Statutory Trust 1031 Exchanges:
- Lack of Control. With Delaware Statutory Trusts, investors can still enjoy the benefits of owning real estate without dealing with the day-to-day responsibilities of actively managing real estate. Although this may be a plus for some, others do not want to give up their management responsibilities. With a DST, investors do not have operational control or have the ability to make management decisions.
- Inability to raise new capital/refinance. Once the DST offering closes, there won’t be future contributions by current or new investors. Major expenditures such as changing or refurbishing a roof can consume several year’s profits. In the same vein, changes in occupancy or diminution in rents can destroy or lessen a property’s cash flow. This means property maintenance can eat up a large chunk of profit. Hence, it is essential to have reserves that are set aside in advance.
- Not liquid. DSTs have moderate to long-term hold periods, typically five to 10 years. And therefore, they are not liquid, i.e., quickly sold for cash.
Conclusion. The 1031 exchange and the Delaware Statutory Trust are well known and highly effective tools for real estate investors to utilize. However, it should be noted that while the concepts of both are pretty straightforward, the details and execution can get a bit tricky. As such, investors utilizing the 1031 and DST options should consult with real estate investment and tax professionals.
While the information at hand can be overwhelming, there are many ways in which you can simplify your understanding of 1031 exchanges and DST’s. Choose the best commercial broker and company to help you understand the ins and outs of these concepts.
Even after outlining all the information above, investing in CRE and the 1031 Exchange process can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Aug 27, 2021 | All Articles, Buying, Investing, Leasing, Selling
In the field of commercial real estate, selling and buying can be touch-and-go. Much of the risk in commercial transactions lies in the selling and buying aspect versus holding the property. Therefore, it is common for clients and landlords alike to struggle when dealing with commercial transactions. Without good representation and legal framework, you could potentially deprive yourself of finding the right commercial property or losing valuable profits on the sale of your commercial property. That is why having a commercial real estate broker involved is essential in securing and closing the deal.
There is a need to have someone who is equipped to deliver professional services in terms of buying and selling commercial real estate. Here are ten (10) reasons why you need a commercial real estate broker in closing a deal.
- Marketing expertise. Commercial real estate brokers are knowledgeable in marketing structures and are good at attracting customers until closing a deal. Due to the fluctuating marketing conditions, a commercial real estate broker can create market opportunities for you and sift out the best-targeted customers. Working with professional brokers prevents you from being at the mercy of marketing pitfalls brought by interest fluctuations and rate hikes. Not having someone who possesses marketing expertise may be detrimental to your commercial property deal.
- Efficient negotiation. In closing a deal, there needs to be a vigor of negotiation. Commercial real estate brokers are efficient negotiators who can secure you a deal. They are bound to negotiate while also taking into excellent account your best interests. This means that they can establish better terms by maximizing the best options at your advantage.
- Truthful information. Commercial real estate brokers are duty-bound to disclosure. This is important, especially if you want to have enough information about the transaction history of your commercial property. Knowing the transaction history of an estate determines buyer credibility and property value. In addition, part of the information provided by commercial estate brokers is the inspection history of your property as well as its interest rates. These are information that a commercial real estate broker can fully disclose and is legally bound to provide their clients with.
- Access to financing connections. Most commercial real estate brokers have substantial social capital. They can give you access to direct links that can assist you financially to arrive at competitive rates and better deals. Not having the connection, a commercial real estate broker entails might ruin your deal before even closing one. Financing connections can also be of great help, especially if you want to give a safety net in the process of your commercial property transactions. This lessens your risk in the deal and might even elevate your interests.
- Extensive buyer connections. In addition to financing connections, commercial real estate brokers have extensive relationships with multiple qualified buyers that will help you close a deal. Small businesses and business owners can streamline your commercial real estate transaction to more opportunities. Access to more potential business owners may help you obtain better search criteria and listings that one commercial real estate broker can assist you with.
- Real estate license holders. Commercial real estate brokers are also credible with licenses. This means that they are legally permitted to manage real estate transactions and help you with the necessary legal documents in the process. As a result, you don’t have to stress too much on the legal work and aspects of commercial real estate dealings.
- Better time management. Having the expertise of a commercial real estate broker, you can manage your business thoroughly and tend to other obligations. You wouldn’t have to stress over the tedious task of facilitating and closing a deal in a commercial real estate transaction. Commercial estate brokers are highly qualified to organize and plan each step of the commercial transaction process and the legal documents involved.
- Saving money in the long run. More often than not, the value of your commercial property lies in working with a professional. Potential buyers are more likely to engage with commercial property transactions that professional commercial real estate brokers handle. This translates to saving more money in the long run as you do not have to worry about paying more commissions to generate more leads. In addition, commercial real estate brokers offer more cost-efficient services, especially in terms of business profits and cost-saving opportunities that can attract buyers.
- Commercial listing access. Listing platforms for commercial properties are very different and extremely more expensive from their residential counterpart. Commercial listings provide a higher level of significant search criteria that generate more leads to eventually closing a deal. The majority of Commercial listings are not accessible to the public, and commercial real estate brokers receive multiple inquires providing a list of potential buyers and tenants. Commercial real estate brokers are usually well-versed in managing and building these listings, which will significantly help you sell your property.
- Years of experience. There is a risk in engaging the services of brokers with little experience. In closing a deal, having a commercial real estate broker ensures valuable expertise. This translates to constituting good terms and leases that can get you secured in the long run. Experience in the industry is also essential, especially as leverage to potential buyers. Buyers would opt to secure a deal with commercial real estate brokers who are credible in facilitating the ins and outs of commercial real estate transactions.
For the foregoing reasons, closing a deal entails the need for commercial real estate brokers. They have the necessary skill set, expertise, and qualifications that can generate success in profitability. While other reasons are worth taking excellent account of, the ones included in this article are sufficient to have your commercial property sold like a pro. Hiring a commercial real estate broker in your future commercial transactions will feel like less work. You will be glad that you did!
Experience less hassle and a smoother transaction by putting your trust in an experienced commercial real estate broker. Do not subject your commercial property to marketing risks and pitfalls. Instead, hire a commercial real estate broker today. Then, you’ll have no regrets in the long run.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Jul 30, 2021 | All Articles, Buying, Investing, Selling
If you are planning to buy a commercial property, either as an investment or for your business, you should consider conducting due diligence as it is an important element in your negotiations and in the contract. Due diligence is defined as research and analysis of a company or organization done in preparation for a business transaction.
From a commercial real estate (CRE) standpoint, due diligence is the process of doing “homework”—checking and confirming any important information on the property you are planning to purchase. It is a systematic way of analyzing and mitigating risk or financial uncertainties from a business or investment decision.
Due Diligence Period
A due diligence period is the time allowed for a buyer to enter the property and conduct inspections, examinations, and tests to all areas of the property as the buyer deems, in their sole discretion, appropriate and necessary.
When does the due diligence period start and how long?
Since the objective of due diligence is to reveal all elements affecting the feasibility of the buyer’s intentions—whether the property is a good, average, or a bad deal, it is reasonable if you want to conduct due diligence as early as possible.
Due diligence period can occur prior to or after signing the purchase and sale contract. However, if you prefer to conduct due diligence prior to signing the contract, the seller will usually limit what is provided and require a confidentiality agreement to be signed. Typically, the due diligence period in CRE is 30 days or less depending on the needs and processes of both parties. It can be extended up to 60 days if there are necessary documentation needed to be reviewed as long as both parties agree to the extension.
There are three (3) major areas in the due diligence process that we think you should focus on:
Physical Due Diligence
A thorough examination of the physical condition of a commercial property is part of the acquisition due diligence process that you cannot afford to go without. The physical assessment of the property is the most important of the three because this is the area that is costly to correct and can greatly affect the property’s long-term value.
Performing physical due diligence will help you understand if the commercial property you are planning to buy has been properly maintained or not. If not, you can use this information to better negotiate the sale price or even back out of the transaction.
Hiring a professional inspection company that specializes in physical due diligence of a commercial property can be highly beneficial to make sure that all areas of the property have been assessed and checked thoroughly. The inspection company should perform inspections not limited to:
- Building/property condition assessments
- Building/property risk assessments
- Capital expenditure forecasts and cost plans
- Facilities management reviews and risk analyses
- Property management KPIs
- Replacement cost estimates
Financial Due Diligence
One of the essential due diligence steps is financial investigation. Financial due diligence is investigating a property’s cash flow by checking the income and expenses if it matches the seller’s representations and to determine if the property’s rent roll is sustainable.
To mitigate risks, a proper review of the asset’s financials should be conducted before closing the acquisition of a commercial property. Do not believe the books and records given by the seller. It is your responsibility to check and double-check the financial statements of the property by verifying each dollar reported coming in and spent on the property.
Since this process is a series of audits—lease audits, contract audits, rent roll analysis, cost analysis, market analysis, etc., it is helpful to hire a qualified accountant who has experience in commercial real estate accounting. This qualified accountant will be part of your A-team in all of your real estate transactions moving forward so make sure that you only hire the best of the best.
Legal Due Diligence
This phase of the due diligence process focuses on the variety of jurisdictions that might govern a property. Legal due diligence involves:
- Title examination
- Survey report
- Analysis of existing permits
- Liens and tax issues
Many problems may arise in acquiring a commercial property without proper legal due diligence. Such potential deal-breakers—potential environmental problems, defects on the title or survey, proper and improper special uses and encroachments that affect the property can put your investment property at risk.
Hence, before you go forward with this deal, hire a real estate attorney in conjunction with a title insurance company and a CRE broker who are committed to having these risks mitigated or identified before you sign the purchase and sale agreement.
Conclusion
Conducting due diligence prior to any purchase of a commercial property is essential since a lot of elements should be thoroughly inspected, investigated, reviewed, and tested. A risk assessment is necessary to avoid any problems that may arise in the future which could cost you some serious damage either on your finances or on the property itself.
If you fail to gather all the information necessary during the due diligence period and it expires, there is no turning back if ever you uncover discrepancies or potential problems that do not align with your intentions and visions for the property. With that being said, your deposit money becomes non-refundable and you will either go forward with the transaction, or withdraw from the deal with your deposit money forfeited.
This is why for every transaction with millions of dollars on the line, rigorous due diligence becomes a “non-negotiable” for any real estate investment.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or email us at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Jul 8, 2021 | 1031 Exchange, All Articles, Buying, Investing, Selling
Most people are aware of the fact that when you sell a long-term investment, which includes real estate, you have to pay taxes. And generally, taxes don’t come cheap.
One of the strategies investors use is the 1031 Deferred Tax Exchange or simply, 1031 Exchange. Since we’ve talked about 1031 Exchange in our previous article, today we’re going to focus more on the Advanced 1031 Exchange Strategies and what you need to know.
Below are four (4) Advanced 1031 Exchange Strategies that investors commonly use:
Delayed Exchange
This is the most common and widely used by investors doing a 1031 Exchange. A Delayed Exchange happens when the exchanger sells their property (relinquished property) first and purchase a new property (replacement property) second by using the sale proceeds.
Usually, the investor hires a third party, known as the Qualified Intermediary (QI) to facilitate the process of the exchange. After selling the relinquished property, the Qualified Intermediary holds the sale proceeds in escrow, and under 1031 Exchange Rules, a replacement property must be identified within 45 days, purchase the replacement property and complete the exchange within 180 calendar days.
Reverse Exchange
While in most cases investors use the Delayed Exchange, there are certain situations where they are having difficulties locating a viable property to be acquired after selling the relinquished property. In cases like these, investors use the concept of Reverse Exchange.
Reverse Exchange is the opposite of Delayed Exchange. Utilizing this strategy allows the investor or exchanger to acquire the replacement property first before selling the relinquished property. Acquisition of the parked property is the first step and afterward, the exchanger is given 45 days from the purchase date to identify the property that he/she plans to sell and 180 days from the date of purchase to complete the exchange.
Improvement or Construction Exchange 
There are times that an exchanger might want to build their replacement property according to their own specifications. Construction Exchange is a perfect strategy for an exchanger to not only acquire the property but also improve it so that the value of the purchased price plus improvements get them to their target replacement. It can be either be a ground-up construction or a renovation. The exchanger, after selling the relinquished property and identifying the replacement property, is given a total of 180 days to finish the construction of the property and close the transaction to complete the exchange.
Simultaneous Exchange
This is a type of exchange where the sale of the relinquished property and the purchase of the replacement property happen on the same day. It can either be (a) a two-party exchange where the owners of the relinquished property and replacement property trade or swap deeds, or (b) a three-party exchange where an “accommodating party” is present that acts as an intermediary to facilitate the exchange, or (c) a Qualified Intermediary – an expert in 1031 Exchanges, is involved to facilitate the whole process of the transaction and makes sure that the exchange follows all the guidelines under the Internal Revenue Service (IRS) Tax Code.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | May 25, 2021 | All Articles, Buying, Investing, Leasing, Selling
The world of commercial real estate is complex and uses terminologies that may not be familiar to you. Learning these terms is like learning a new language. At first, it can be overwhelming but once you’ve familiarized yourself with these, it will help you better understand the process and make you aware of what lies beneath so you won’t feel under-informed.
Here are the 25 commercial real estate terms we believe you should know:
- Amortization – the action or process of repaying the loan principal with regular payments over a designated period of time consisting of both principal and interest.
- Assessed Value – the value of a property established by a governing authority to levy a tax or fee on the property owner.
- Balloon Payment – it is a type of loan that does not fully amortize over its term resulting to an oversized payment at the end of the loan term.
- Broker – a person who represents another person or a company during a buying or selling process.
- Capitalization Rate – also known as “Cap Rate”, is a term that is used to help determine the potential real estate deal. A percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by purchase price. It is based off of an algorithm by dividing the net operating income (NOI) by the sales price of the property.
- Common Area Maintenance – also known as “CAM”, is the amount of costs you are responsible to pay for maintaining the building. These fees include maintenance of shared areas: hallways, elevators, stairways, lobbies, public restrooms, parking lots, sidewalks, etc.
- Due Diligence – the process of examining a property, related documents, and procedures conducted by or for the potential lender or purchaser to reduce risk.
- Escrow – a legal arrangement in which a third party temporarily holds large sums money or property until a particular condition has been met. It is used as a way to protect both the buyer and seller during the commercial property purchasing process.
- Equity – The fair market value of an asset less any outstanding indebtedness or other encumbrances.
- Flex Space – is a form of commercial real estate that is flexible in terms of what it can be used for (e.g., space that could be utilized for industrial or office activities).
- Internal Rate of Return – also known as “IRR”, is the percentage of interest earned on each dollar that remains in an investment each year.
- Lessee – The person renting or leasing the property, also known as tenant.
- Lessor – the owner or the lessor of a property that is rented or leased to a tenant, also known as landlord.
- Letter of Intent – also known as “LOI”, a preliminary agreement that is negotiated between a tenant and landlord or buyer and seller.
- Listing – refers to the listing agreement that is made between a principal and an agent, regarding marketing of a property. Listings may include details about the property, the home (number of bedrooms, baths, featured rooms), other structures, the price, and photos.
- Net Operating Income – also known as “NOI”, the potential rental income plus other income, less vacancy, credit losses, and operating expenses.
- Real Estate Investment Trust – also known as “REIT”, is a company that owns, operates, or finances income-generating real estate. The trust is not subject to corporate income tax as long as it complies with the tax requirements for a REIT.
- Rentable Square Footage – is the amount of space that includes the usable square footage plus some part of the square footage that will be shared among tenants. This may include bathrooms in hallways, lobbies, restrooms, elevators, or cafeterias.
- Return on Investment – also known as “ROI”, is a measurement of how much money an investor receives after all expenses have been deducted. It is the difference between the net gains from investing in the property less the net cost from investing in the property divided by the purchase price of the property, expressed in percentage.
- Sale-leaseback – a leasing and financing strategy in which a property owner sells its property to an investor, then leases it back.
- Triple Net Lease – also known as “NNN”, is a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property including real estate taxes, building insurance, and maintenance.
- Usable Square Footage – is the amount of space that is being leased. Usable square footage determines wall-to-wall space under the lease terms. It is a space that is not meant to be shared with other tenants.
- Vacancy Rate – the percentage of the total supply of units or space of a specific commercial type that is vacant and available for occupancy at a particular point in time within a given market.
- Value-add Properties – are those that need corrective action to reach their full potential value. These investments typically target properties that have in-place cash flow, but seek to increase that cash flow over time by making improvements to or repositioning the property.
- Zoning – refers to laws that regulate how real property can be used in certain areas, designating the type of operations allowed on a site.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Jul 1, 2020 | 1031 Exchange, All Articles, Buying, Investing, Selling
(1) A §1031 tax deferred exchange is for investment property only. Land, commercial, or residential property that has been rented out, all qualify.
(2) A seller must use a Qualified Intermediary (QI) to act as the safe harbor of their funds
(3) You must spend equal to what you sell for minus customary closing costs in order to have 100% tax deferral. Anything below that number will be exposed to taxes, up to the extent of your gain.
(4) The true meaning of Like Kind: to the IRS the term simply means anything held for investment purposes. So you can buy and sell any of the following Land, Residential and Commercial and ALL are considered like-kind, OR you can sell one and buy multiple.
(5) Timeframes are not extendable in an exchange, the seller has 45 days from close to identify what you are going to purchase and a 180 days to close on it. The 45 days are included in the 180 days.
(6) Giving buyer credits are considered unallowable expenses if audited may be considered Boot (taxable cash), so consider lowering the sales price verses giving buyer credits.
(7) Under the (g)(6) of IRC 1031, there are restrictions when you can access you funds, if you have identified a property and you are past your 45days and don’t close on a property previously identified, your funds are held for the full 180 days. Be sure you have a good QI that clearly explains this so your funds don’t get locked up.
(8) Buying and selling from family members has its restrictions, when you buy from a direct member of your family; parents, children, siblings there is a two year hold rule under related party rules. Both you and the family member have to sell/buy and hold for two years or the taxpayer’s exchange could be deemed failed under audit.
(9) The exchange industry is not regulated, what that means is anyone can be an Accommodator. That is scary, chose a nationwide company that has the financial stability and backing to protect your funds.
(10) Most important, The IRS states you must be in exchange agreement with a Qualified Intermediary(QI) prior to closing on the sale of your relinquished property in order to defer any gain when you buy your replacement property; it cannot be done after close.
Sheila Long
Regional Sales Executive
Old Republic Exchange Company
C: 480.341.2032
T: 480.443.6830 -AZ
E: SheilaL@oldrepublicexchange.com
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
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