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The 3 most common ways 1031 replacement property is identified

By
Managing Real Estate Broker with Alpine Lakes Real Estate Inc., NHRE# 02863

The identification rules most used 

 *The 3 property rule, the easiest way to comply is to identify three properties, you must make a formal attempt to name the street address, map and lot number or by a deed reference. You can literally find a location you like and write down 3 street addresses. the problem with this strategy is that you may not be able to negotiate a purchase and sales agreement on any of them (so working with a Realtor, and using property that is listed will help greatly).

*the 200% Rule, If you sell a large property this option provides lots of latitude to acquire many small properties. Some investors will want to diversify their property interests by acquiring more than three properties. If more than three properties are desired, the total value of what is identified must not exceed twice (200%) the value of the property sold.

*the 95% rule, There is one last rule to be aware of during identification, the 95% rule. This allows you to identify as many properties as you desire, at any value. The tricky part of this rule is that you MUST purchase at least 95% of the fair market value of the identified properties. As you can imagine, this rule is not for the faint of Heart!

The sales proceeds cannot touch your hands (or your representatives) so a Qualified Intermediary (QI) is employed to handle the transaction. The QI will produce a contract that must be in place prior to the closing and will direct that the funds be placed under the QI's control for the client's benefit for the purchase of replacement property (s).

There are investors buying and selling property using this method and you can take advantage of these sales if you know the basics of the exchange process and help your client hire a good Qualified Intermediary.

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                                                                                                                                                                              Your-White Mountain New Hampshire real Estate Expert

                    steve@alpinelakes.com toll free 800-926-5653 /cell 603-381-7898

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    Grafton County NH MLS search

Michael A. Caruso
Surterre Properties - Laguna Niguel, CA

Hi Steve,

Nice post, thanks for sharing.  Have a great weekend.  Michael A. Caruso

Jun 27, 2008 06:35 AM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Hi Michael, hope you can use some of the information to help with a 1031 exchange. Steve

Jun 27, 2008 06:50 AM
Valerie Osterhoudt
Johnson Real Estate, Inc. - Cromwell, CT
ABR, Cromwell, CT Real Estate ~ 860.883.8889

Steve.. Thanks for the information on the 1031 exchange.. I was/am thinking of looking into this as to broaden my horizons in real estate.. just not sure if it is profitable.  Any suggestions are welcome.  Val

Jun 27, 2008 07:32 AM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Val, the first time I got involved in a 1031 was to take a 3 hour credit course for licensing, I have taken more advance courses and with any thing in life once you understand the principals it is easier to discuss the up-side. To-date I have help hundreds with 1031 exchanges from vacation rentals that would have had big capital gains (we sheltered) to a investor I sold three properties for and he purchased a $1.6m strip mall with the proceeds (that was a 4 sale deal for me) oh the good old days --last year..Steve.

Many owners who don't want to sell right now would give it a second thought if they knew how to defer the capitol gains and purchase other replacement income property that may be easier to own or /own and use a few weeks a year once the 2 year holding period is over you can take a property out of rental and retire there.. ETC..

Jun 27, 2008 07:47 AM
Marie Meyer
Keller Williams Realty - Central Valley, NY
Orange County New York Realtor

Hi Steve ... Thanks for the information.  I have never handled a 1031, but I do have an SOI contact who has asked about exchanges.  My broker handles them, but I appreciate having a better understanding of the process. 

Jun 27, 2008 11:42 AM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Marie, this is one of the best IRS treatments, showers on the real estate community and more so investors. As I said to Val (above) it's great to take  this as a 3 hour course for your required hours, at license renewal time. thanks for taking a look. Steve

Jun 27, 2008 12:49 PM
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Steve,

Great post.  The more 1031 exchange information that we can get out there the more investors will be aware of them and will be able to take advantage of the tax-deferred benefits of the 1031 exchange. 

Hope all is well.

Jun 28, 2008 05:28 AM
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Thanks Bill, You have been a great resource to me and hope more Realtors can see the value in understanding the tax deferred exchange as a way to increase their business. Steve

Jun 28, 2008 05:36 AM