Anyone that can explain how a 1031 exchange works very simply?

[Christine Mwai]

I'm looking to sell one of my rentals because it is free and clear and even though it is a great property in a great neighborhood, I think I could do better on the cash flow. These are my questions and I appreciate any and all feedback..this is not something in my comfort zone, but always learning.

1. I was quouted a fee of $1000 by an online company I called.

2. Since the premise of a 1031 exchange is that the 3rd party holds the funds from the sale of property "A",  how do I find a company I can trust with my hard earned money.

3. Can one add funds from what property "A" sold for to buy "property B"... 

4. Can the funds added be from someone other than me, the original owner of property "A".

Thanks for any and all input. This is not an area I am familiar with so give me grace if my questions sound off.. 

[Kenneth Reimer]

@Christine Mwai Christine, these are great questions that I'm sure many people have. 

1. I'm not as versed on the price as compared to the process, but $1000 seems reasonable for an exchange intermediary. 

2. I believe track record, and reaching out to people that have executed a 1031 exchange will be key. If you do decide to proceed, I would lay out your goals, needs, and preferences. This way, you'll be able to key in the type of intermediary you would like.

3. Yes, you can add funds. The important part of a 1031 is that you exchange into a property of equal or greater value. By moving all of the money, you don't have any "boot" (which is money you didn't move, and therefore pay capital gains on). One of the constraints related to adding funds, is in regards to your identification period. Within the 45 days of closing your property, you can identify a total of 3 properties, with a maximum aggregate value of 200% of your downleg (the property you are selling).

4. I'm not sure on pooling money in a partnership with partially deferred equity. To my knowledge, you are able to do that. However, I would hate to lead you in the wrong direction, and this is a question for the intermediary.

This is a great website with a plethora of information if you'd like to get more in depth.

http://www.1031exchange.com/faq/

I hope this helps Christine, and please reach out with any other questions!

Kenny Reimer