Would you risk conducting a 1031 exchange right now?

[Damian Smith]

Just got notice that our renters are moving out in Port Hueneme, CA. 

Approx $300k in equity and the goal has been to 1031 exchange into a comercial property ~$1M.

 Given all the uncertaintity with the current pandemic is it too risky to execute a 1031 exchange right now?

[Dave Foster]

@Damian Smith, Fear of the unknown is a powerful force for sure.  But if you dive into the macro statistics the market really isn't unhealthy at all.  It's just stuttering like it should after a hurricane or wildfire, or earthquake, or pandemic.  A great point of comparison for you would be to compare the tax and depreciation recapture you'd have to pay immediately (with your next return) with how much of a correction it would take to make paying that and waiting for a better opportunity.  

I just saw an estimate the other day that there's well over $300 Billion sitting in cash in private equity real estate firms waiting out a correction.  They're hoping for 20% and especially focusing on the commercial sector.  Meanwhile there is a surprising amount of cash owned real estate or cash flowing real estate (yes there really are people and companies out there paying rent.  Buzz feed and MSN just haven't interviewed them).  These and other sellers seem to have about 5% flex right now.  So there's your market play -Buyers want 20% discount and sellers are willing to give 5%.  Where's it going to land?  Who knows.  But remember there's no penalty for starting a 1031 and not completing it other than the exchange fee.  For me selling right now and getting to take a look at the environment in a couple months would be worth paying for the peek.

You've worked hard for the profit and equity.  Pay it back if necessary but don't volunteer it out of fear.