I'm looking for a tutorial on UPREITS. Primarily I would like to set up a REIT with my existing property - a stable foundation for the REIT, and attract additional property via 1031 transfers (UPREIT) or direct purchases of similar properties into the REIT.
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Your best bet is to contact a law firm that has experience in REITS and going in for a consultation. The whole reason to do it would be for the tax benefits and you wouldn't want to have the gov/irs say you did it wrong.
How big is your property? A REIT needs to have at least 100 owners and no one can own more than half of it.
MonopolyMoney,
You bring up a key item - 100 owners, and hence why I wanted a basic tutorial on REITs. ;>)
I'm trying to find a mechanism to accumulate properties, e.g. all the properties in a city block, in order to get to a critical mass of properties that allows redevelopment. Trying to acquire 20 - 30 properties from 10 - 15 owners in a city block means an investment crap shoot of a 2 to 3 year of negotiation / buyout process, and the adder of holding costs for multiple years. Both those factors will kill off most redevelopment efforts.
I was thinking an UPREIT structure might have some value by allowing current property owners to 1031 transfer into the UPREIT. The UPREIT could provide stability, and a small pop in income with my existing properties. If the critical mass of properties is reached, the owners could share in some bonus, e.g. a 50% REIT buyout premium. If the critical mass of properties is not reached, then eventually the REIT is dissolved, with no foul.
Broadstone, the guys in Rochester New York, have a good bit of information on their website under the FAQ section.
Depending on your bankroll, how about just tying the properties up with extended option contracts w/ contingencies based on the acquisition of the other 19/20 properties on the block? Little more risk and legwork on your end but you keep your bonus and don't have to deal with them after acquisition of the property.
TinMan1: That sounds like a solution as long as you have one target, e.g. one block.
Unfortunately I don't have a massive bankroll that allows me to sit back. The problem/opportunity is we have 3 blocks the City has proposed / targeted for redevelopment. The City owns one or two pieces of property on each. However, the remaining segments of the blocks have 10, 12 and 9 owners. The costs and complexity of running a lot acquisition program on multiple blocks - each which can be redeveloped separately - trying up the lots on each block with extended option contracts gets to be a lot of purchase/option contract paperwork and a lot of time/money expense while you try to get the entire block.
Why a REIT? That's the question, unless you are looking to attract more than 100 outside investors and be relegated to basically an operator. A REIT is a pain in the ass to operate and is only really necessary if you are at a point where you need to tap into institutional money that requires a more direct input into the actions of what you are doing. A REIT is really just a last ditch act of an investment group to bring in new money.
My opinion is, its not worth it unless you need to attract large institutional money for you investment goals, which if you can create confidence in your system isn't even necessary.
Heister: There's the rub from the property developer side. Attracting institutional money.
Why not just use a Partnership or LLC.? requirements can be a nuisance and I don't see how it will provide you that much benefit? As mentioned in the comments above, you will have to meet the 100 shareholder requirements. You will also have to do you due diligence on any property you acquire to make sure you are not providing any impermissible services to you tenants(At the property level, if income from the impermissible services is greater than 1% of rents, then you have a 100% tax penalty).
The list goes on: 90% distributions requirement, 95% and 75% income test, 75% asset test, 10% securities test...
Thank you. REITs sound worse and worse. Always good to avoid a tar pit.
I think you'll want a Delaware Statutory Trust (DST). A Tenancy in Common (TIC) structure may also be appealing but most people are moving away from TIC to DST.
ItsANumbersGame: Thank you. I'll read up them this weekend.
I think you also might want to consider how much control you will want on the asset. Also from a marketing perspective I think the 1031 concept is more heavily sold and understood than UPREIT legalities.
Question regarding 1031 process (Originally Posted: 08/07/2015)
Assuming the seller of a property needs a 1031 upleg to move forward with a transaction, does the equity need to all be traded into a single new property, or can it be moved into multiple new acquisitions so long as the price of the new properties is greater or equal to the one being sold?
In other words, if I had $10M of equity coming out of the sale of an office building, and I needed to upleg to avoid capital gains, could I split it up and invest $5M each into 2 apartment properties? Or would I need to locate one single property that I would need to invest the full amount into?
Multiple replacement properties may be designated, up to three without regard to market value. Any number of replacement properties may be invested in so long as the aggregate market value is between 95% and 200% of the relinquished property value.
Thanks VaTech.
So as an example, if I were selling a property for a sales price of $10M, I could buy 2 replacement properties for $5M and $6M, say. Provided both of the new purchases were completed within the time frame allowable.
Correct.
I got into an argument regarding this yesterday. Someone told me that if you 1031 your old property (say you held the sold property for 5 years) and purchased a new property that you have "kicked the tax can down the road". I'd agree with this but that same person said the "base" (for tax purposes) on the new building is now 5 years old. I tried telling him that the building was "new" to you and you can straight line depreciate it from year 0 on (for 39 years). He said that you start at year 5 since your old property is 5 years old.
Also, do you have to pay the 15% depreciation recapture (on those 5 years) or is that included in the 1031 exchange and therefore you don't take that 15% hit?
It depends, but you're usually correct. Assuming the newly acquired property has a longer depreciating life than the relinquished property, you depreciate based on the newly acquired property's schedule. In the unlikely event that you acquire an investment that has a shorter depreciated life than the relinquished property then you use the relinquished property's depreciation schedule.
You don't pay depreciation recapture until you realize the gain, so the 1031 exchange process effectively avoids that tax, unless you exchange for property that is not subject to depreciation (e.g. land), at which point you must pay taxes on depreciation recapture.
If the feds streamlined (and liberalized) this absurdly complicated process, you'd probably see a lot more transactions and redevelopments (i.e. higher GDP and job growth). My group refuses to sell our property's ripe for redevelopment because of the tax consequences. Example of income taxes creating market inefficiencies.
"My group refuses to sell our property's ripe for redevelopment because of the tax consequences."
You mean that they'd rather redevelop the property themselves than sell it off? Why wouldn't they entertain a sale and a 1031 and avoid the tax consequences.
1031 exchange is remarkably complicated to pull off with large assets because you have to replace 1 large property with another in a relatively short time frame (a study period alone can be 30-60 days on the purchase of a new property; finding the right lender with the right terms can take months, too; not to mention identifying the correct acquisition property). And 1031 out of one property for a new construction project is a logistical nightmare, so if you want to dump one old property for a new property, it's really tough.
For us, we're not developers--we're property investors and owner/operators. Lots of property owners are like us--we don't want to redevelop our own properties but pulling off a 1031 is really tough. So what's been the easy thing to do? Sit on it. And that delays redevelopment, GDP and job growth in this sector, not to mention the delivery of newer, better product.
This seems to be a little misleading.
1031's aren't THAT difficult to pull off. Find a property you like, do your preliminary diligence, and then forward allocate to it and you've bought yourself ~6 months. Even 1031'ing into a new development shouldn't be a headache from your end - it's a ton of additional work for the developer, but not necessarily the 1031'ing party.
To say your property is languishing in an underdeveloped state is a reflection on your management, not necessarily the tax law. There are tons of ways to establish tax protection in a JV agreement and preserve upside, whereby a developer can monetize the asset for you.
If your argument is that you don't have a quick and easy way to make a lot of money without avoiding potential liabilities... well, I'm not entirely sure why government policy should be geared around making you/your company the most possible money for the least possible effort and with the least possible risk.
Moreover, how do you streamline such a process without opening it up to massive exploitation? If you can hold your earnings indefinitely without paying tax, it creates a huge number of additional problems on the oversight side which cost the public sector money just so the private sector can avoid taxation.
I don't think you know what you're talking about, to be completely honest.
Uh, have you ever sold a $50-100 million property and tried to buy a $50-100 million property? Finding the right seller at the right price + finding the right property at the right price, and then obtaining debt financing is incredibly complicated. Yes, it can be done in 6 months, but the circumstances would have to line up remarkably well. In your desperate attempt to avoid taxation, you're far more likely to sell low and buy high with your tax incentive, realizing a de facto negative net gain when all things are considered.
Again, I'm not sure you know what you're talking about. A 1031 into new construction is basically impossible unless you can pull off the construction in
But again, the point of the 1031 exchange isn't to help you avoid tax liability and therefore spur new construction/investment, it's to spur new construction/investment and in return grant you a reprieve on paying taxes. I understand that you're in real estate so it's easy to put the cart before the horse on that, but as I said, it's fundamentally misleading to complain about the program when your doing so from the perspective that it exists to help you avoid taxes and not the other way around.
And I've helped quite a few people exit from $30-50mm sales into properties. I suppose being in NYC may be skewing my view of the ease of doing so, but it's really quite simple here. Tons of buildings are trading at any given time for that price.
[quote="Troll - Aged 18 Years"]Again, I'm not sure you know what you're talking about. A 1031 into new construction is basically impossible unless you can pull off the construction in
I genuinely have no idea what you're even saying. My point was that a 1031 exchange was not easy and that it could be made easier. You're getting into some philosophical diatribe that isn't even logically consistent or based in any knowledge of what the 1031 authors' intention was. The principle of a like-kind exchange is almost 100 years old, and real estate was incredibly easy to buy and sell. Have you seen a real estate sales contract from the 1970's? They were 1-2 pages. Today they can be dozens, even hundreds of pages.
A $30 million property in NYC is equivalent to a gas station in almost any other market. Trading out of a $50 million apartment building in any normal market into another $50-100M equivalent property would be difficult to do in a manner that would actually benefit the user. You're right that your NYC experience is completely invalid for inferring how other markets work.
"Marty, I'm sure in 1985, plutonium is available in every corner drugstore, but in 1955 it's a little hard to come by."
This assumes you want to own a 99-year ground lease (a lot of people don't--most people don't as this generally dilutes the total value of the property, which goes back to my original point that usually a 1031 exchange results in net negative consequences for the user in their desperate attempt to defer and even avoid taxation), that you're ok missing out on depreciation tax deduction, which is the main reason to invest in real estate, that you can find a develop-able lot in the time frame desired, that you can settle on the property and construct a ground lease in the time afforded.
My company is owned by dozens of senior citizens who have extremely low taxable bases on properties they've owned for decades; they need cash flow. And selling a property and paying a 45-50% tax rate (with depreciation recapture this is what you're looking at) a sale is not viable without a 1031 exchange. Again, you don't have a flippin' clue what you're talking about so why don't you STFU about my company's situation?
What are you talking about? The IRS doesn't monitor anything. You're talking as if the IRS is an asset manager. You or your tax preparer puts together your taxes and then the IRS might audit them. What the absolute fuck are you talking about?
What are you talking about? The tax bill was passed in December 2017 and was enacted Jan 1, 2018. We have no idea what the impact will be yet on wages and GDP growth. The tax law is less than 90 days old. You're literally making shit up.
Yes, a lot of people, especially in real estate, avoid new investment because of taxes. Taxes are probably the #1A or #1B consideration in real estate investment.
Your point is that 1031 exchanges aren't convenient enough to help you exit out of properties and into new ones. My point is that isn't the point of the exchange. I am making a philosophical argument, because the intent here is important.
Except, you can legally execute a 1031 across state lines, so your ridiculous assertion that the NYC market has no bearing on the rest of the country is moot - you can exit out of your Oklahoma multifamily building and into a NYC multifamily building.
Yes, if you are a tenancy in common of dentists from 1975, depreciation and tax sheltering may be the primary reason for investing in real estate, but that isn't every single investor. Now who is assuming he knows everyone's motivations for investing? Because "depreciation" is certainly not the primary motivation for being a real estate investor for even a small minority of the industry folks I know.
.Hah. You aren't creative enough, then. I've structured a couple transactions that sound suspiciously similar to what you are talking about . Building in tax protection from depreciation recapture isn't difficult. Again to make it a bit more philosophical - no, you won't make a mint on the sale, because at some point you have to pay taxes.
But this is where what seems to be the fundamental disagreement between us comes into play; I don't believe the tax code should be structured in such a way as to protect you (or rather, your investors) from the legal consequence of the tax benefits they've been taking for years AND help them make yet more money in the future. These people invested in these assets knowing that they'd have to pay the piper one day, and your complaint is that now that said day has arrived, they have no way to defer their tax obligations even further? Again. Your investors came into whatever deal(s) it is hoping to shield income through depreciation loss - awesome. But now wanting to have their cake and eat it too? I don't see why the public has to foot the bill for that.
So.... let me explain. The IRS can audit you for tax fraud, ya know? They have a limited ability to do so, because they don't have infinite resources/staffing. Still with me? Which is why part of the reason you are advised to hold your new asset for at least 2 years. Obviously some of it comes from the "investment intent" portion of the law, but additionally, it's because as time goes on, you are less likely to be audited by the IRS, as they just don't have the capability to continuously audit deals that may be a 3+ years old. If you want to expand the rules surrounding 1031 Exchanges to allow sellers to escrow sales proceeds for years on end (as opposed to 6 months), you make it concurrently more difficult for the IRS to audit effectively. In other words, the cost to the public will go up because more public expenditure will be needed in order to audit years-old 1031 exchanges to make sure they are compliant with the tax code, or the cost to the public in lost tax revenue will go up as the system is increasingly exploited.
I'm not. https://www.reuters.com/article/us-buybacks/update-1-u-s-corporate-buyb…
I obviously won't make the claim that this is representative of all industry, all companies, or any other plans the companies cited may have for the future, but it seems telling to me that the first actions these companies (within 10 days, not 90) took wasn't to raise wages or pay bonuses, but to buyback stock and pay dividends. Which isn't illegal or wrong - but the point is that economic theory says, in a vacuum, that lowering taxes should allow benefits to flow through to consumers and employees in lower pricing and higher wages. The reality is that this almost never happens, which is basically the macro story of the economy since Reagan. Lowering taxes benefits shareholders. Again, not wrong - but worth considering how this shit works on the ground as well as in theory. Trickle down economics is awesome, in theory - and it's been pretty thoroughly discredited in practice.
TL;DR - I don't need to know the specifics about your business to know that your position on 1031 exchanges is motivated by a desire to make it easier for you (/your investors) to defer a tax liability, and not to spur investment. And again, this is the entire point of our disagreement - you're wishing for a tax policy that makes it as easy as possible for you to make as much money as possible, with as little effort as possible. And I don't think that's the purpose of the tax code.
Also, I'd suggest you do some research on how NYC developers are re-positioning Mitchell Lama developments in the last 10 years or so. Might have some valuable insight into serving your senior citizen investors in exiting long-term hold investments without being subject to depreciation recapture. I don't mean that condescendingly - it's complicated but it's definitely possible (though of course I am not privy to the laws and intricacies of whatever asset class and municipal regs you are dealing with)
What's the intent of tax-deferral? The intent is to encourage re-investment. There is no other logical intent behind laws and regulations that allow for tax deferral. Allowing for tax deferral is the incentive to get people to sell and pursue more optimal financial gain, which is good for the economy. My point is that making this easier is good for America.
This is totally misleading. Rarely is a property sold in Philadelphia, PA and exchanged for a property in Kansas City. You could do that but you likely won't. Because real estate groups work locally, generally speaking.
For tenancy-in-common? Huh? You can realize tax benefits for partnerships and corporations, too. Depreciation tax benefit is an accounting tax rule, not a function of how property is owned.
Without the depreciation tax benefit, real estate would be far less interesting as an investment class. I can't believe that's even debatable.
What you're saying is objectively false. When assets are inherited the tax basis is re-set. See why senior citizens may not be interested in paying 50% tax rate on their sale?
I don't care what's "fair"--I care about what's good for America, which is capital investment. Our political philosophies are radically different, which is fine. You will never convince me of your position because I see your position as fundamentally immoral, based on envy.
This makes NO sense. How does extending the 1031 period from 6 months to 2 years make it more difficult for the IRS to audit transactions? That literally makes no sense.
[quote="Ozymandia"]I'm not. https://www.reuters.com/article/us-buybacks/update-1-u-s-corporate-buyb…]
Your claim was that this tax bill--passed 90 days ago--has failed to grow wages or GDP, which is not based in any fact (we're not even through Q1!). We have no idea what the outcome will be of an 80-day-old tax bill.
I can post anecdotal evidence, too, of wage increases, which means nothing (and does not boost the claim that tax cuts boost wages--it's just short-term anecdotal evidence):
https://www.washingtonexaminer.com/over-100-companies-giving-trump-bonu…
On your point about properties rarely being bought/sold across state lines, maybe I am in my own little bubble and most of our borrowers (I work at an intermediary) are buying real estate, particularly triple net retail in states where they dont reside, and many of them are 1031 exchanges. I was under the impression that thats what most investors would want to do-if they are capable, as your local market may just not offer you the yield that your looking for. In your experience, is that not the case?
You are not understanding my point. You are looking at the law as if the point is tax-deferral, and the result is investment. I don't think it's a stretch to say that the point of the law as written is to encourage investment, and the reward is tax deferral. It's a fine distinction, I understand - but if you are going to look at laws as if they are written for a private benefit, your view on the entire concept of government will be skewed, and this is what I'm saying to you. You are looking at 1031 exchanges as a vehicle for private enrichment, and in that light, they are inefficient and should be revised. But as a vehicle for investment the reward for which is personal gain, they are currently working much much better than you allege (or seem to be implying, at least).
As the commentator below you points out, you are wrong on this. Properties are OFTEN sold and exchanged in a new geographic environment, because investors are hunting yield. There is an entire industry of brokers/advisors who help investors who are looking for 1031 exchanges for just this reason.
Are you serious? I'm trying to have an adult discussion about this, if you are going to so obviously misinterpret my arguments then we can set it aside. My point is that the kinds of investors who are looking primarily for depreciation in order to shield income are usually non-real estate professionals - the craze of creating TICs for groups of middle class professionals was prevalent in the 70s and 80s. Obviously the implication was not that only TICs can take advantage of the tax code.
It isn't. But that wasn't your argument. You said, explicitly:
And I don't think that is right. Obviously depreciation is a major benefit of real estate investment. But there are plenty of investors who would argue vehemently that it isn't the primary concern for them. You sound like your investors may consider it the most important aspect of their investment, and that may be the case (again - a group of dentists in the 70s, or today, might see that as the most important benefit). But don't apply that to all investors in all asset classes.
When an asset is sold, the purchase can be structured to shield investors from tax consequences in exchange for a lowered purchase price.
Again, your argument is that your investors should be able to take 27.5 or 40 years of depreciation (or whatever it is), and then be able to sell for a full market price, avoid the depreciation recapture, AND avoid any further capital gains on the sale. That isn't the way the law is meant to work, and that's self-evident. Which goes back to my point about how you approach the tax code. If you approach it as a private investor looking to make the most money, it doesn't make sense. If you approach it as a lawmaker balancing spurring investment, and taxing citizens on their gains, then it makes a lot of sense.
Envious of what? Your position makes no sense. Look at your argument about depreciation. Not that I feel you don't understand it, but to lay our cards on the table, depreciation is deductible because the idea is that an asset loses value every year until some (fairly arbitrary) future date at which it is obsolete and therefore valueless, and in order to spur capital investment in real property, you allow investors to protect other income by counting this as lost capital every year.
And yet... there is a TON of housing stock in this country, for example, which gets to the end of it's depreciable life and doesn't fall into dust. Nor does it necessarily require a rehabilitation equal to it's original value. By that logic, depreciation is a giveaway to property owners, because they extract far more value in reality than they should hypothetically.
I think government, and the laws/regulations it creates, exist to balance the protection of the few with the wishes of the many. Whether this is in terms of balancing the protection of private wealth against the wishes of the poor to redistribute it, or the rights of a minority group to obtain public services despite the wishes of a majority group, it's always a balance. You want to government to make you as rich as possible. I think that's a perversion of government as great as the proverbial 99% asking to take all your wealth and dump it out of a blimp. But if you are looking at a civic institution meant to serve the needs of a vast community and wondering why it isn't tailored to help you in particular, I believe you are approaching the entire question wrong.
You're reading way too much into this. I'm really, genuinely exhausted from reading your book-long essays on the topic. My only point--which I regret now making since I've had to read your uninsightful books--was that 1031 exchanges are not particularly easy transactions for large real estate projects, and because they are difficult for large real estate projects it likely delays some capital investment. That's it. That's my only point. I'm not sure how this simple statement has resulted in this back-and-forth.
NNN real estate is an entirely different animal and the transaction sizes tend to be a lot smaller. As you'll recall, my intial statement was with regard to large transactions, particuarly development projets. NNN real estate is a specialty asset class that I wasn't commenting on.
This isn't true at all and I'm not sure how you're reaching this conclusion. And it's obviously not true. Depreciation tax coverage is a key to the cash flow model of REITs--and almost every other real estate investor...
I just fundamenally don't agree with you. Depreciation tax coverage is definitely one of the best reasons for investing in real estate in the United States. I'm not sure how that's even remotely debateable and I'm not sure how to respond. Without depreciation tax coverage investment real estate prices would be a lot lower. It's basic supply and demand.
I don't know what you think I'm arguing but you're so spoiling for a fight--for whatever reason--that you're putting words into my mouth. All I've said was that 1031 exchanges are hard to pull off for large real estate projects and that it would be better for the government to amend its rules to match the realities of 21st century real estate, where transactions are more complicated and lengthier than they were in the 1970s. That's the crux of my position. I'm not arguing that no one should ever pay taxes, but the reality is, for my company--whch for whatever reason you feel compelled to comment on...continuously, as if you know better than the billionaires that I work for--which is owned by senior citizens, they don't want to pay 50% tax rate on real estate that they can give to their heirs within ~15 years tax free...That's it...
I'm not even gonna tackle the rest of your diatribe. Yeah, you're right, there's a ton of housing stock in the U.S.--no affordability crisis America.
America Has a Stunning Housing Shortage https://www.ozy.com/acumen/america-has-a-stunning-housing-shortage-here…
If you are interested, there are platforms that will help you choose your next property quickly. 1031 exchange companies have multiple properties available at one time.
Regarding 1031 exchanges (Originally Posted: 01/08/2017)
Never been on the buy or sell side of a 1031. Had a couple of general questions, and then one that's more opinion based.
From the date that the sale/downleg closes, the investor has 45 days to identify replacement properties. Are there any cases where the 45 days can be extended, or is it pretty firm?
Regarding the 200% rule. For simplicity, let's say the investor bought a property during the pit of the recession all-cash for $10MM. As market recovered, the property was appraised for $20MM and he financed with 50% debt so $10MM debt, $10MM equity. Decides to sell property and gets $25MM. 200% rule would indicate that up to $50MM in replacement properties can be ID'ed as uplegs. Is that the correct logic? Take the sale price of the downleg and maximum aggregate upleg cannot exceed 200%?
Is there a maximum number of properties which can be ID'ed during the 45 day period? I'm assuming you couldn't ID a ridiculous number of properties in an effort to hedge against some of them falling through? Generally speaking, are deals on the ID list already properties that the buyer has a firm LOI or even signed P&S on? How "confident" does he need to be to include a deal on the ID list?
Opinion based, it would seem that depending on the type of upleg desired, the ID process would need to begin much earlier than when the downleg closes. For example, if the investor didn't actively begin looking for his upleg until Day 1 of the ID period, a complex hotel acquisition might not be feasible given the fact that 45 days might not be enough time to do all the upfront leg work, figure out whether the franchise agreement will transfer, etc. Is that a safe opinion? Even on a basic apartment deal, if the property is listed, it's usually a 30-60 day process to pick a winning bidder and if you only had 45 days, how could you rationally include the property on your ID list when you might find out afterwards that you weren't awarded the deal?
I don't have all the answers but I can help a little.
1) No extensions whatsoever. 2) 3) You can exchange into a max of 3 properties. 4) A smart investor will identify a building they want while in contract to sell their current one. A really smart investor will write in a clause stating that COE will not occur until a contract has been written for the 1031 property.
Above was a quick and solid reply...regarding #2), your math is correct...please remember that on the replacement property you must use an amount of leverage equal to or greater than the prior asset. Meaning, if your current property is 50% LTV, the replacement property must have leverage =>50%.
In my opinion, this is a big danger in the next round of 1031's for this deal cycle. Many 1031 shops are taking advantage of all-time low rates and using leverage of 70%+ on their deals. These investors were sold on all-time low rates and high leverage to juice returns. However, in 5-10 years when the property sells and CURRENT investors want to roll the funds into a new 1031 project, they will likely be doing so in a period where rates are much higher. Now, they have no choice but to use leverage >70% in an interest rate environment that very well may be twice as high as it was on their last deal...
Good point on 1031 buyers over leveraging themselves in the current environment. One alternative they may have down the line is zero cash flow properties. Many of these deals are heavily leveraged. Purchase zero cash flow and refi majority of equity and debt back out..
I know this is heretical, but there's always the option of paying capital gains taxes...
We call it "no debt relief" with regards to loan balances in an exchange. It wasn't too long ago that we called exchanges "Starkers", or how much "Starker Money you working with"
Now it's just an exchange and you have X dollars with the accommodator.
When you submit your left of ID properties to the accommodator, how far along in the process is typically the case? In other words, do you want to be in escrow by the time the ID period expires? Have a signed LOI?
Can you ID as many as you want in the hopes that one of them will pan out and take care of the upleg fully?
1031 Advice (Originally Posted: 11/05/2017)
Anyone have advice for successfully executing a 1031? Should I keep this a secret from brokers? I feel like if they know it is 1031 money, then they will try to retrade us at closing. There is a limited number of opportunities to identify and I feel like that's the best time to try and retrade someone. The plus of telling brokers is they know you are serious about closing and they won't waste your time with something sticky that probably won't close.
bump, I'm trying to figure this out too.
We do a lot of NNN work outside of our normal developments and it is definitely encouraging on our end (sellers) to see a 1031 buyer. This lets us know that the buyer isn't about to fuck around and wants to get this deal done. Just make sure you have 2-3 lined up behind the one you're looking at so if they try to retrade you can tell them to shove it.
Not sure why they'd try to retrade it in the first place to be honest. Once you have it under contract at that sales price they're obligated as long as you fulfill all your requirements.
1031 BS (Originally Posted: 02/01/2017)
So I've read and had conversations with 1031 accommodators who have told me explicitly that the 45 day ID period is absolutely not subject to any extensions, despite the fact that many investors and accommodators will backdate or fudge numbers to comply.
I'm doing some paid consulting work for a private investor who just recently closed his downleg for an obscene price. I'm being paid to source underwrite and get signed LOIs on deals for his upleg. I know for fact when he closed escrow on his downleg, and based on the 45 days know when his ID period expires. He has been telling me they can extend it and is giving me a date which is closer to 65 days from the date he sold his downleg.
I've basically played dumb so far. I'm sure he knows what he's doing, and maybe hoping I'm naive to the fact and won't ask too many questions.
His capital gains exposure is close to $15MM if he doesn't exchange. I'd love to figure out a way to put the fear of God into him by letting him know that if he tries to backdate I will blow the fucking whistle on him and try to collect my reward from the IRS. Id love to cram a few deals down his throat where I could make some commission split from the seller's broker.
He's a foreigner, so I'm guessing his accommodator is probably of the same culture as him and complicit in this scheme.
Any thoughts?
My initial thoughts are, good luck getting the IRS to pay you a fee. Years ago I looked into whistleblowing for the IRS because I was witnessing so much tax fraud, and my research revealed that the IRS rarely pays out rewards, relative to the tips they receive.
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