I was at a real estate industry function this evening and I bumped into a commercial real estate broker that was visiting from the state of Arizona. He brought up the fact that he had just completed his own very first reverse 1031 exchange and was commenting on what a horrible experience it was.
I inquired as to what happened and he proceeded to tell me all of the horrible details. There were so many little issues that created some really big last minute panic attacks for him. The bottom line is that the reverse 1031 exchange services provider did not really understand real estate. They were merely 1031 exchange processors and he said they took the position that they just had to take title to the property and then pass title on to him once the reverse exchange was completed.
They didn't warn him that the mortgage company would probably back out at the last minute if someone didn't sit down and make sure they truly understood what a reverse exchange meant and what was involved. Sure enough, they backed out less than a week before the closing and the reverse 1031 exchange provider didn't have any lenders to recommend to him.
They didn't warn him that this particular city would charge a documentary tax when they took ("parked") title to the property AND when they conveyed title on to him. Those of us who have been in the reverse exchange industry long enough should already know the majority of those cities, counties or states that are more difficult when reverse exchanges are invovled.
This particular reverse exchange processor did not set-up separate limited liabilities companies for each client transaction. He was really surprised to learn what could go wrong when the reverse exchange processor holds all of the properties in one entity.
He went on and on.
The moral of the story is that real estate investors need to talk to their prospective reverse exchange processors to find out what there level of experience is. They need to select one that has significant experience and expertise in reverse exchanges and can walk them through the entire process and provide them with the pitfalls and tell them what to expert and what to watch out for. In short, they need to select one that is not just a processor, but one that is an ADVISOR.
Reverse 1031 exchanges can actually be somewhat smooth with the right reverse 1031 exchange ADVISOR. Click here for information on how to get started.