Reverse 1031 | Palo Alto BNB

Hey BNB Peeps!

Here’s some thoughts about how you can save time in Escrow involving a Reverse 1031.

Most people may not be aware of how a 1031 affects an Escrow, so you can be sure that even less people know the effect of a REVERSE 1031.

A REVERSE 1031 requires the creation of an LLC for the Exchange Accommodate TITLEHOLDER , also known as the EAT, where the title of the replacement property is held.

In the regular 1031, CASH is held in a special account, but since I have not done a regular 1031 yet, I will not say whether it is an LLC or NOT. In a Reverse 1031, the TITLE is held in a special account. An EAT is specifically for a REVERSE 1031.

TALK TO YOUR 1031 ADVISOR about this LLC detail and how it may affect the purchase agreement.

THEREFORE, you real estate lawyers and escrow officers, the Purchase Agreement must have an amendment to accommodate the LLC of the buyer. If you know this ahead of time you can get the real estate attorney to prepare the amendment to the purchase agreement ASAP, before he or she decides to take a week off without his lap top and cell phone.

Sometimes it takes so long to nail down a purchase agreement, it just helps to know this detail beforehand to smooth things out when you think everything is supposed to be on autopilot.

BTW, Buyers have the option of keeping the LLC after the escrow is closed, so buyers need to carefully consider the actual name of the LLC that is created.

My second thought about saving time in escrow, is working with a LAW GROUP or at least a legal professionals who have a backup in case they need to go on vacation or get sick, run off to Jamaica, or anything else that can interfere with getting work done when needed.

Is it ever possible that lawyers can work together in a way that is collaborative and to save time? Ugh.

Even if your Escrow officer and you 1031 Exchange Officer are from a Title/Escrow company and its affiliate, do not assume that days will be saved based on what I just tried to explain to you.

ANYWAY, the next time you find yourself in a 1031 situation, I hope his little information will help.

Please like, share, comment, follow my blog or contact me if you have any questions, or if you’ve got some nice tips.

CKY

In your efforts to secure a property for your BNB you may run into a situation where you are selling an investment property to obtain a replacement investment property.

For those of you who do not understand what a 1031 Exchange is, here is a brief summary.

You can defer capital gains on selling an investment property if you set up a 1031 carefully (adhering to all 1031 rules) pipe it to another investment property of equal value or greater.

It can be any kind of real estate to any kind of real estate, anything from undeveloped land, to commercial property, as long as both are qualified Investment properties.

Normally, you sell an investment property, use the proceeds from that sale to fund the purchase of your new replacement investment property.

WHAT IF, you need to purchase the replacement property (i.e. with cash) before you can sell the relinquished property to fund the new acquisition? You are totally screwed, right?

What I discovered, someone in their infinite wisdom created a 1031 instrument called a “REVERSE” 1031.

This way, the title to the replacement property is held in a special Exchange Accommodated Titleholder (EAT) until such time you can close the sale of your relinquished property thereby accomplishing the desired deferring of capital gains.

Please speak to a qualified 1031 Exchange Intermediary or Agent to get the full details as there are different costs involved and other requirements that I have not covered in this blog article.

Good Luck.

Please like, share, comment, follow my blog or contact me if you have any questions, or if you’ve got some nice tips.

CKY