This is part two of our discussion of reverse exchanges in a downward, declining market where opportunities come up fast. In the last podcast, we were discussing parking the ownership of the new replacement property with your exchange accommodation titleholder; a LLC typically set up by your qualified intermediary to park the ownership of your new property…
This podcast is all about reverse exchanges in a downward market. A downward market is where real estate values are declining and opportunities are rising; opportunities to buy real estate at a cheap price. Remember “price” is set by the market, “value” is established by the cash flow in an economic analysis. So, it is possible to buy a property at a price below its value and in the marketplace, if you find such an opportunity you want to seize on it immediately! You don’t want to wait around; you want to buy it now! …
This podcast is all about the 1031 holding period, which is not really a period but more a state of mind. What I mean by that is when you acquire a property in a 1031 exchange, you need to have the proper intention. This proper intention is to hold the property for either “investment” or for “use in a trade or business”.
After you have completed a 1031 exchange and have your new like-kind replacement property, you want to give it away as a gift.
This is a huge trap for the unwary, because people think…it is my property, I should be able to do what ever I want with it…correct?
Well, if they want to satisfy the requirements of their 1031 exchange, then they should probably not do anything (including gifting) that is inconsistent with holding the new replacement property for “investment” or use in their “trade or business”.
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