Reverse Exchanges and Seller Finance

Recently we attended a real estate marketing session and while listening to a broker’s pitch someone in the audience suggested seller financing as an opportunity to get the deal done. Someone from the audience responded that since the seller was working on a reverse exchange, seller financing was not an option. This is simply not the case.

We often hear people discuss the hardships of seller financing in a 1031 exchange. While seller financing can pose an obstacle in a delayed exchange, it can be a dream when integrated into a reverse exchange. Consider that in order to do a reverse exchange, the Exchangor must have the financial ability to acquire the replacement property without yet having the proceeds from the sale of the relinquished property. The Exchangor loans the money required to close the up leg to the EAT (“exchange accommodation titleholder”- a single member LLC the Accommodator is the member of) and the loan is to be repaid with the proceeds from the future sale of the relinquished property.

When the sale of the relinquished property involves seller financing, the note is simply used as consideration in lieu of cash to repay the initial loan between the Exchangor and the EAT. The sale of the relinquished property has been made possible utilizing the flexibility of seller financing which in today’s financial market may be the only way to get a deal done.

A prime item of consideration is the investment opportunity this approach makes available to the Exchangor who is now able to benefit from the interest rate charged on the note. It’s a fair bet the note’s return is substantially greater than what the money would yield sitting in a bank, or the potential return today’s stock market may offer… Through the years we have even had Exchangors use their IRA or borrow money to acquire the note carried on the relinquished property since the note’s return can be so attractive!

Invest in What You Know…

The sooner you involve the team of professionals at Equity Advantage in your 1031 exchange, the better. They’re seasoned experts who know all the ins and outs of this complicated transaction. Call them at 503-65-1031 and protect your investments!