Mid Atlantic Real Estate Journal — March 14 - 27, 2014 — C
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§ 1031 E xchange
By Scott Rotkowitz, IPX1031 Section 1031 Exchanges: Amulti-property investment strategy
elling just one relin- quished property and buying just one replace- ment property is typically what S
number of smaller rental units worth $100,000. They have been good investments, but now you have an opportunity to buy a larger commercial mixed-use property. It’s a good deal, but how do you fund it? Simple, sell a few of your rentals. A savvy investor might achieve some efficiencies by packaging all the relinquished properties together and selling them to one buyer. Buying multiple properties works the same way. Some of the best real estate opportuni- ties currently are in foreclo- sures and short sale properties. You may own an office building
or retail investment, 90%+ rented, that is worth $500,000 and buyers are plentiful. In order to take advantage and buy some of the available fore- closed or short sale properties, you could sell the single invest- ment property and buy five or six distressed properties. It is a harder concept to grasp because most investors are trying to buy up. They are not typically thinking about selling and dividing the income into less costly assets. This method allows for numerous benefits such as diversifying into mul- tiple properties and use of a value-added strategy.
Although we will intentional- ly avoid an in-depth discussion of all the laws and regulations that surround § 1031 transac- tions in this short article, it is important to mention the § 1031 identification rules. These rules define the number and value of properties that can be identified for purchase in a § 1031 ex- change. In essence, these rules limit your ability to make gener- al and unlimited identifications. You can identify up to three potential replacement proper- ties without regard to their values. If you identify more than three, then total aggregate value of all properties identified
may not exceed 200% of the total value of the relinquished properties in the exchange. Before contemplating a § 1031 exchange, it is import to speak with your tax advisor and plan out your strategy. This planning phase is paramount to ensure success when contemplating a multiple property exchange with three or more properties. If done correctly, exchanging with more than just two properties can be implemented into your investment strategy and can create greater opportunities and rewards. Scott Rotkowitz, Esq. is VP at IPX1031. n
is thought of when contem- p l a t i ng an IRC § 1031 real estate ex- change. Most tax advisors are aware on s ome l e v e l that multiple
Scott Rotkowitz
relinquished or replacement properties can be sold or pur- chased through an exchange. Investors are typically less aware of this fact. Why don’t we see a greater number of exchanges involving more than just two properties? Most likely the reason why advisors and investors do not utilize the ability to sell or purchase multiple properties is because they are thinking solely in linear terms – sell one prop- erty and buy one property. Most people have enough on their plate with one relinquished property and one replacement property. However, a powerful investment tool emerges when using exchanges with three or more properties involved. Selling a relinquished prop- erty for $500,000 and then buying a replacement property for $500,000 or more is the typi- cal way we think about § 1031 exchanges. If we move beyond this “one to one” idea we realize that we can take advantage of multiple types of market op- portunities. For example, you may be an investor that has a cow because they differ only in quality or grade. On the other hand, a dairy cow might not be considered like-kind to a beef cow because they represent two different types of livestock. As always, review all aspects of any proposed farm or ranch exchange with a competent tax and/or legal advisor along with a reputable leading national ex- change qualified intermediary, Asset Preservation, Inc. Scott R. Saunders is a senior VP with Asset Pres- ervation, Inc. Pamela A. Michaels is an attorney and VP of Asset Preservation, Inc. n This information is not intended to re- place qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel. © 2014 Asset Preservation, Inc. All rights reserved. continued from page 7C Farm&Ranch Exchanges . . .
S till jumping thoSe §1031 exchange hurdleS alone ?
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