The real estate market has changed considerably over the last few years, even the last few months, with the residential real property market getting especially hit hard. And, with the commercial real estate market beginning to show signs of weakness, the investor must rethink his or her strategy when it comes to investing in rental properties or investment properties.
The amount of real property inventory on the market has increased significantly because properties are taking much longer to sell. There has also been a significant increase in the number of foreclosure, deed-in-lieu of foreclosure and short sale transactions with bankrupcties right behind. And, of course, the market is also showing an increase in the number of properties that are falling out of escrow because the buyers are having trouble with the new lender guidelines and requirements, therefore creating additional obstacles for 1031 exchange transactions.
Real estate markets like this make planning, structuring and coordinating 1031 exchange transactions even more complicated and challenging. It can also make you feel like you have lost control of your 1031 exchange, especially if you have already lined up the acquisition of your like-kind replacement property and are having difficulty getting buyers excited about purchasing your relinquished property.
The reverse exchange can put you and your clients back in control of the real estate investment process because you and your clients can take all the time you need to find the most suitable investment property and then acquire it first before the relinquished property has even been listed or sold.
You then have 180 calendar days after you have found the most appropriate property and acquired it to market and sell the existing relinquished property. It is certainly a buyers market, but priced properly the property will move.
Increased Reverse Exchanges
We at Exeter Reverse 1031 Exchange Services, LLC expected to see a significantly reduction in the number of reverse exchanges administered during 2008. The market would seem to favor selling first and then looking at the significant amount of increase in inventory to identify and acquire within the 1031 exchange deadlines.
However, we have been really surprised to see a strong increase in reverse exchanges due to the problems associated with the mortgage, debt and capital markets. The buyers are having significant challenges in obtaining new debt and then closing on the relinquished properties and the sellers/investors are faced (forced) with the proposition of acquiring the like-kind replacement property first or lose the investment opportunity altogether.
The reverse exchange allows them to proceed without losing their earnest money deposit, without losing the investment opportunity, and still preserving the opportunity to defer the payment of their taxes by using the reverse exchange structure.
Stay tuned for more thoughts regarding reverse exchanges.
Website for Additional Information
You can visit Exeter Reverse 1031 Exchange Services, LLC's website for more detailed and in depth information on reverse exchanges.
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