Video: Understanding 1031 Reverse Exchanges

SAN FRANCISCO — Host, Sarah Rutan: A 1031 exchange can be a beneficial financial tool, but the limited time constraints can make it a difficult feat to pull off. That’s why it’s worthwhile to consider doing a reverse exchange. Today we’re in San Francisco with Diamond Certified Expert Contributor Ralph Bunje Jr. of Independent Exchange Services, Inc. to learn more.

Diamond Certified Expert Contributor, Ralph Bunje Jr.: One of the things that a lot of people have been asking about is something that has changed in the 1031 Exchange Industry. Want to keep in mind the industry has been around since 1921, but doing – but doing exchanges up until 1980, you basically had to buy and sell on the same day. And that was really a trick and it’s an even bigger trick in today’s world. So, what happened after 1980 is that you had a 45/180 day period following the close of escrow on the one you sold, your relinquished property, to buy your replacement property. But the biggest problem was identifying something in 45 days, in writing, that you would be purchasing within 180 days. What we found is that in the current market environment, where there’s a lot of buyers around, it’s been very hard to nail down the right property.

So, we do reverse exchanges and they’ve been allowed by the IRS since 1980. And we’ve been doing them pretty regularly now, especially in today’s market, where we will actually buy and park the property you wish to purchase. In other words, we’ll work with you and with your lender to put together a deal where we buy the property and park it to – park it for you. You then lease it from us during a 180-day period and, during that 180-day period, you have the opportunity to sell your property and buy it from us. And, as long as you do that, you’ve bought the right property. You’ve got it at a right price. You’ve improved your negotiating position on the sale. You’ve improved your negotiation position on the buy. You’ve made an ec – you’ve actually made an economically superior investment.

One of the nice things about it is it means you have purchased the right property and you did not buy the wrong property because you were running out of time to identify something. You bought the right property which means when you go through the next five years, you’re pleased that you did it and you got it done on time. It’s a more expensive transaction. I’ll give you a heads up on it because there’s a lot more work involved, but it’s one of those transactions, or we find in most cases, people actually make money on a reverse exchange because of the benefits that they get with the improved negotiation position on both they sell and their buy side.

Host, Sarah Rutan: To learn more from local top rated companies, visit our Diamond Certified Expert Reports at experts.diamondcertified.org.