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Question: I live 900 miles from California and it´s gotten to the point where I feel it´s impossible for me to continue as an absentee property owner. I haven´t seen my property in six years and I don´t foresee travelng in the near future. I don´t feel comfortable having a management company handling my affairs. What other alternative do I have?
Answer: That´s easy! Do a 1031 exchange. Property values are so high on the Westside of Los Angeles right now that you´ll probably be able to buy several income properties wherever you are located outside of California and manage them yourself. A 1031 exchange allows you to defer the capital gains that would have been owed on the sale of your property and to use the full reinvestment of your sale proceeds on the purchase of more real estate. It´s like an interest free loan in the amount you would have paid in taxes. There must be at least two properties in an exchange one or more that you are selling (relinquishing) and one or more that you are replacing (acquiring). The properties being exchanged must be "like kind". In your situation, the replacement property(s) must be for investment purposes. If you are selling an 8 unit building, you may purchase single family homes, condos, duplexes or even another 8 unit building as long as the total purchase price is equal to or greater than the sales price of your sold property. This might sound confusing, but help is close at hand through a qualified intermediary, otherwise known as an accommodator. You have the choice to identify what you want to sell and what you want to replace it with, but the accommodator is the legal vehicle through which the properties are transferred. The proceeds from your sale cannot be given directly to you. There are rules that must be adhered to. Before you close on the sold property, you must demonstrate intent to exchange through a written agreement with an accommodator. Your real estate agent will also put your intent in writing in the listing information so that the buyer is aware that you wish to exchange the property that is being purchased. Timing is critical. Within 45 days from the closing date on your sold property, you must identify one or more potential replacement properties. Within 180 days from the closing date on the sold property, you must purchase one or more of the replacement properties that have been identified. What I have just described is the most common type of exchanges a delayed exchange when you surrender your relinquished property and then acquire the replacement property at a later date. There are two other types. A concurrent exchange is when your sale and purchase close at the same time. Newer is the reverse exchange where you can buy your replacement property before selling the relinquished property. Although 1031 exchanges are applicable anywhere in the United States, some states have special regulations affecting exchanges in their state only, so please check in your area. |
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