1031 exchange into opportunities - 45 day rule pressure

[David Thompson]

Ironically I had conversations with two folks over the past few days who have significant gains in property sales and are under pressure to decide where to reinvest.  The more sizeable the gain the more challenging and increase risk of rushing to select the wrong property given the 45-day identification rule. One person had a large land sale and essentially is at a time in their life where they just don't want to hassle about running around every weekend frantically for 6 weeks looking for something else to invest in and appears willing to just pay the taxes.  The second person had a large gain from a home on the west coast and is more active, wanting to look for a small apartment community to test their management skills outside the state. Talking to this person I could hear the frantic tone in their voice on what to do.

I was talking to both of them because they are both accredited investors that I have an existing relationship with.  Neither had thought that there are some passive opportunities to put some of their funds into solid apartment syndication deals using the 1031 exchange.  Developing a relationship with these sponsors would be wise, getting their newsletter, etc and keeping up on deals that are in funding stage.  Deals come up that may fit both the strategy and timing to move some money into these offerings.  By splitting funds up or giving some breathing room, its a strategy that I think works and not a lot of folks are aware that they can use 1031 exchanges to invest in a partnership or syndication deal.

[Dave Foster]

@David Thompson, The pressure of the 45 day window is real but it doesn't have to present an insurmountable hurdle with planning like you do with your clients.

1. There is no reason to not start planning the purchase well in advance of the sale.  60 - 90 day closes are not uncommon so if a seller started looking for their replacement property the day they went into contract they could have as much as 4.5 months to locate and contract their next property if they're confident in their sale closing or if they use contingencies on either the sale or purchase contracts.

2. For individuals with sizable gains the reverse exchange is the best thing going.  It allows the investor to lock up the new property first before selling.  

3. Syndicated products such as DST's and TICs can offer the failsafe option as well.