The Biggest Rule of Any Exchange… Plan Ahead!
The most difficult and vital part of any real estate exchange is acquiring the next property, your “replacement” property. The time-worn adage, “You make your profit when you buy real estate”, is true. But anyone who acquires a replacement property without knowing what they are going to get out of it is at the mercy of chance.
Plan for the Future
Experienced investors plan for the future. They know the profit they must earn to reach their investment goals. With this in mind, they attempt to calculate how much profit they will earn in the next investment, what they must do to earn that profit and when they will take their profit. They plan for the resale before they close escrow to buy their replacement property. These plans take into account potential changes in the economy and the financial markets as well as trends and valuation methods. To a knowledgeable investor, being “stuck” in a property long after it has peaked may be a disaster.
What You Can Do
Although it is difficult, if not impossible, to emulate the methods used by the most successful investors, there are a few steps every investor can take to meet their investment objectives:
- Develop an investment plan. Know what your investments must accomplish for you over your investment life.
- Ask yourself how the proposed investment fits your plan. What profit or return is it going to give you? If it does not fit your plan, it shouldn’t be purchased.
- Develop a resale plan before you make a purchase offer. The various terms and conditions of the purchase offer may affect the resale. Can you obtain seller financing with unlimited and unrestricted assumptions? In the event of long-term seller financing, is there a provision for an extension if the financing market is soft when the note comes due? How can the purchase help to prepare this property so that the next buyer will find it attractive?
- Develop a management plan. Write down all of the facts you reviewed and were told that led you to believe that the property would produce a certain profit or cash flow. If the property is supposed to increase in value to meet your investment objectives, how is it going to do that? If rents are to be raised, write down how much and when. Write down the profit you must make, when you intend to take that profit and how you will operate the property to meet your objectives. The more detailed you can be, the better able you will be to see if the replacement can actually meet your objectives.
– Ronald C. Stasch, CCIM, NAC
If your 1031 exchange is not complete by the due date for your tax return, you may need to file for an extension.
The time frame you have to complete the acquisition of your replacement property ends at midnight on the earlier of the 180th day after the date you transferred the relinquished property OR the due date (including extensions) for your income tax return for the taxable year in which the transfer of the relinquished property occurs. (U.S. Treasury Regulations section 1.1031(k)-1(b)(2)).
This means, if the 180th day following the closing of your first relinquished property falls after the due date for your 2021 tax return (for example, for many individuals, April 15, 2022) you must file an application for extension of time with the IRS to extend the due date in order to have all 180 days to acquire the replacement property. If you do not file for an extension, you will NOT be able to acquire any replacement property in your exchange after your tax return due date. Taxpayers may have different tax return due dates.
If you have any questions, please contact your tax advisor.
Our Next Webinar!
Did you know it’s possible to finance the purchase of a new business with your retirement account? The process is called a “rollover business startup” and your 401k literally owns the new business. This class is available for 1 OR CREDIT HOUR and will cover everything you need to know about investing off wall street!
- What classifies Investment vs. Business?
- Rollover Business Startups (ROBS)
- What they are & why to use them
Can’t make it? You should still register! Anyone who signs up will receive a copy of the slides and a link to view the session again.
www.post1031.com offers the Real Estate investment community a place to freely post and browse investment property. The website is aimed at doing one thing, making real estate move!
Why to use it… Our exchange clients have 45 days to identify that perfect replacement property that they are looking for. One place they can turn is www.post1031.com our free online resource for property listings. Clients can browse the listingsand contact the brokers directly with no middle man. Clients can view their own listings with confidence and reassurance that their property is being seen.
45 days to a signed deal….
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site we are here to help Investors get where they want to be. About Us…