How to Find 1031 Exchange Buyers

Find 1031 Exchange Buyers

 

Commercial real estate investors, property owners, and brokers can benefit from participation in a 1031 exchange.

What Is a 1031 Exchange?

A 1031 exchange, so named for the IRS code that allows it, is a tax strategy used for sales of investment property. Typically, when a property is sold, the seller must pay taxes related to depreciation recapture and capital gains. A 1031 exchange defers payment of those taxes. When the proceeds of the sale of an investment property are used to acquire a new property, the real estate investor can defer tax liability as long as specific requirements are met.

Exchange Facilitator

The IRS requires 1031 exchanges be conducted with a qualified intermediary who holds exchange funds on the seller’s behalf and ensures the necessary transactions take place. This facilitator cannot be the investor’s real estate agent or a relative.

Like-Kind Property

To qualify as a 1031 exchange, the replacement property or properties acquired must be “the same nature or character” as the property sold. This does not mean the same type of property, such as an office building, must be purchased. This means that the replacement property must be held for investment. The property cannot be a primary residence, or one intended to flip for a quick profit.

Purchase Price and Debt

The replacement property’s purchase price must be equal to or greater than the sold property’s price. And if the sold property had a mortgage, the replacement property must be financed with at least the same amount of debt.

Timeline

Within 45 days of the property sale, the real estate investor must identify at least one like-kind property to buy in exchange. Multiple properties can be identified, as long as their combined value does not exceed 200 percent of the original property’s sale price. These properties, including their addresses or legal descriptions, must be identified in writing. The document must be given to the exchange facilitator. Within 180 days of the property sale, the investor must close on the purchase of the replacement property or properties. If not, then the investor will be liable for all applicable taxes on the property sold.

Why Might You Want to Find 1031 Exchange Buyers?

If a buyer is seeking a 1031 exchange, you can confidently make a few assumptions:

  • The 1031 exchange buyer recently sold a property and has immediately accessible funds to purchase another property.
  • The buyer has a short window of time to complete a purchase for replacement property.
  • The buyer is eager to close on a replacement property to defer payment of taxes.

Those trying to perform a 1031 exchange, consequently, are motivated buyers.

How and Where Can You Find 1031 Exchange Buyers?

You can find 1031 exchange buyers through a brokerage that specializes in these transactions. You could search through one of the websites dedicated to 1031 exchanges.

Or you can use an alternative to more labor-intensive methods.

For example, you can use a commercial real estate property database such as ProspectNow.

There you can perform a search using filters to target potential buyers, identifying properties sold within the past 30 days for a price reasonably within your property’s price range.

These recent sellers might be looking for a replacement property to complete their 1031 exchange!