1031/Reverse to fund first commercial property

[Chris W.]

Hi All!

I've decided it is time to 1031 exchange/Reverse a property I've owned and rented out for a while. I have good equity in it and would like to get into commercial real estate instead of buying another residential rental property (not opposed to it if it makes sense though!).

Plan:

Sell it and use the proceeds to fund my first commercial property in or near the area I live in.

Questions:

Where do I start?

How do I finance if I can't quite pay in full for a property/build out? (Proceeds from property will be enough to buy small commercial lot outright with maybe some leftover....but the building?) 

Office Space is what I would like, but what are my options?

What are the rough costs for a commercial property manager say around Norfolk, Va.?

Is an all in one solution (broker/developer/architect/etc.) A good option to start with?

When I sit with a broker/company before deciding on one...what are good questions for "vetting them"?

My goal is to be mostly hands off and have it professionally managed. I want to get away from residential real estate for now. I'm active duty and plan to retire soon. Selling 1 property will restore partial VA entitlement as my current residence is also on a VA loan.

My questions are vague to get a broad range of answers and learn.

Thank you for the help!!!

[Dave Foster]

@Will Gaston thanks for the shout out.  @Chris W., I think you're probably thinking of a regular 1031 exchange here.  The statutory order of the 1031 is that you sell your old property and then buy your new property.  A reverse exchange is used if you have to or want to purchase your new property first.  In that event the QI takes title to your new property and holds it while you sell your old property.  

These can be a great option but come with some pitfalls.  They're complex so quite a bit more expensive than a regular 1031.  You have to provide the financing and it's not a conforming product.  So you have to use either your own money or private money, or a portfolio loan from a local bank.  And there's still a time constraint - you only have 180 days from the day we take title to close the sale of your old property.  So you want to make sure about that as well before embarking on a reverse exchange.

@Charles Kao's recommendation to get your new property under contract first is a great one.  You can go into contract on your new property at any time.  That would really ease the timing issues of a 1031.  And the due diligence for a commercial property is usually a bit longer which would give you even more time to get your property sold..

Given your distance and experience I'd look for a great commercial leasing broker who has good connections to product for sale.  Although leases are for a much longer term generally the whole business of leasing is very different in the commercial world and you'll want their expertise.