Author Topic: Reverse 1031 exchange - anyone done one?  (Read 2024 times)

Papa bear

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Reverse 1031 exchange - anyone done one?
« on: January 08, 2019, 10:35:24 AM »
My parents have identified a rental property to purchase and they would like to sell a current rental with a 1031 exchange.

The purchase of the new rental would happen before the sale of the current rental property.  It looks like there is some tax code that allows for this as a reverse 1031 exchange.  From my brief reading it looks like you need to identify your property to “sell” in 45 days and then have to sell within 180 days.

Problem is, no one my parents have talked with have any idea how to do one.  Has anyone gone through one?  Does anyone have recommendations for lawyers/accountants/title companies in Ohio that could assist with this? 

Would love any help! 




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CowboyAndIndian

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Re: Reverse 1031 exchange - anyone done one?
« Reply #1 on: January 08, 2019, 04:56:13 PM »
Yeah, I did one a couple of years ago.

I sold 2 rentals and bought a new property.

The whole thing is described in detail here https://forum.mrmoneymustache.com/real-estate-and-landlording/questionsadvice-about-rentals-gt-1031-exchange-gt-rental-gt-primary-residence/

Let me know if you have any questions, the thread is quite detailed.

Edit: On re-reading your message, I see that you are talking about a reverse exchange. I did a straight exchange. A reverse one is harder from what I read.
« Last Edit: January 08, 2019, 05:03:38 PM by CowboyAndIndian »

Papa bear

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Re: Reverse 1031 exchange - anyone done one?
« Reply #2 on: January 08, 2019, 05:52:47 PM »
Yeah - we’ve done a regular 1031. But this reverse one, we don’t want to mess this up. 

An opportunity came up to purchase a house at a great price that they couldn’t pass up.  But timing won’t work for a standard 1031 as the other rental probably won’t sell until summer.


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Rocketman

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Re: Reverse 1031 exchange - anyone done one?
« Reply #3 on: January 10, 2019, 03:30:34 PM »
I believe, You will need a 1031 intermedia, someone to “buy” the property you want and hold it until you are able to sell the property.

A good intermedia will handle all of the issues, so you don’t get burned.

Good luck

Papa bear

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Re: Reverse 1031 exchange - anyone done one?
« Reply #4 on: January 11, 2019, 09:07:21 AM »
They’ve had quotes up to 8k to be the intermediary for a reverse 1031.  Same place said a regular 1031 would be about $750.

It sounds like no one wants to do this.

Looks like they’re going to buy the house anyway and potentially do a standard 1031 with a different place later this year.


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jeromedawg

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Re: Reverse 1031 exchange - anyone done one?
« Reply #5 on: May 24, 2019, 09:00:53 PM »
They’ve had quotes up to 8k to be the intermediary for a reverse 1031.  Same place said a regular 1031 would be about $750.

It sounds like no one wants to do this.

Looks like they’re going to buy the house anyway and potentially do a standard 1031 with a different place later this year.


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Curious but did your parents ever go down the route of doing the reverse? We are currently considering doing something but the difference is that the place is my primary residence and I co-own it with my parents (their portion is considered the 1031). We have been talking about moving into a different place via reverse 1031 mostly because of timing and such. The situation is pretty different and I'm sure most people aren't doing this, let alone a reverse 1031 to begin with it seems. But yea, $8000 sounds about right - I think our QI quoted around $7k. Anyway, if we did a standard exchange, we would likely be moving out of the current place (just because it would be hard to stage and show with all of our stuff in the place) and renting until the standard exchange completes. With rents at $2k per month around here, we'd be under the gun to try to complete a standard 1031 in no more than 3-3.5 months which seems relatively ambitious with the market slowing down like it has been. So the idea of doing the reverse 1031 is more for logistics and less headache and hassle with moving.
The other headache I've been finding is the financing, since you are basically required to either advance the cash for the new place in full OR you have to come up with the money somehow like by a loan or combination of loan and advancing cash, etc. And not many places are willing to loan the money out for that (since the loan will be in the name of an LLC per what the QI sets up as the entity taking control of the property to provision the reverse exchange). I just got prequalified but for 5/1, 7/1 or 10/1 ARM loans and with APRs over 4%. I figure we would want to advance repay a majority of that loan when the relinquished property sells but I'm not quite sure what the max is you can advance repay at a time - you definitely can't fully pay off the loan. The whole thing just sounds like a mess either way, in dealing with a loan and what not. I've got to get out of living on a bottom unit though, which is part of what's driving this. We may just end up moving out anyway and renting a place sooner than later. Wanting to get our kid into a unique (Mandarin) immersion program further south of where we are which currently is the only district in our general area with such an offering. Moving into that neighborhood guarantees him a spot. But I think rents are also slightly more affordable too.
« Last Edit: May 24, 2019, 09:10:13 PM by jeromedawg »

Papa bear

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Re: Reverse 1031 exchange - anyone done one?
« Reply #6 on: June 02, 2019, 06:29:32 AM »
They’ve had quotes up to 8k to be the intermediary for a reverse 1031.  Same place said a regular 1031 would be about $750.

It sounds like no one wants to do this.

Looks like they’re going to buy the house anyway and potentially do a standard 1031 with a different place later this year.


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Curious but did your parents ever go down the route of doing the reverse? We are currently considering doing something but the difference is that the place is my primary residence and I co-own it with my parents (their portion is considered the 1031). We have been talking about moving into a different place via reverse 1031 mostly because of timing and such. The situation is pretty different and I'm sure most people aren't doing this, let alone a reverse 1031 to begin with it seems. But yea, $8000 sounds about right - I think our QI quoted around $7k. Anyway, if we did a standard exchange, we would likely be moving out of the current place (just because it would be hard to stage and show with all of our stuff in the place) and renting until the standard exchange completes. With rents at $2k per month around here, we'd be under the gun to try to complete a standard 1031 in no more than 3-3.5 months which seems relatively ambitious with the market slowing down like it has been. So the idea of doing the reverse 1031 is more for logistics and less headache and hassle with moving.
The other headache I've been finding is the financing, since you are basically required to either advance the cash for the new place in full OR you have to come up with the money somehow like by a loan or combination of loan and advancing cash, etc. And not many places are willing to loan the money out for that (since the loan will be in the name of an LLC per what the QI sets up as the entity taking control of the property to provision the reverse exchange). I just got prequalified but for 5/1, 7/1 or 10/1 ARM loans and with APRs over 4%. I figure we would want to advance repay a majority of that loan when the relinquished property sells but I'm not quite sure what the max is you can advance repay at a time - you definitely can't fully pay off the loan. The whole thing just sounds like a mess either way, in dealing with a loan and what not. I've got to get out of living on a bottom unit though, which is part of what's driving this. We may just end up moving out anyway and renting a place sooner than later. Wanting to get our kid into a unique (Mandarin) immersion program further south of where we are which currently is the only district in our general area with such an offering. Moving into that neighborhood guarantees him a spot. But I think rents are also slightly more affordable too.

They bought the new place and continue to hold the old one as well.  When they want to sell it, they’re going to do a standard 1031.

Spending 8k just to defer taxes seems way too expensive. 


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