Using a Section 1031 Exchange to trade from one property to another is a common event. Most of the time owners are seeking higher returns. In the case below, my clients were looking to go from a tired property to a much nicer property.
A Tired Duplex in Concord
Rear Unit of a Duplex in Concord, CA
I was contacted to list a property in Concord for a client. The property was a 2 unit property with great access to Concord BART. The property was not in the best of shape. It had been a rental for 30+ years and some of the tenants had beaten the property up. While listing the property we learned that one of the tenants was going to be an issue and had to process an eviction in the midst of trying to sell the property.
To complicate the matter, the owners had performed a 1031 exchange in the 1980’s when they bought the property. I advised them to consult with their CPA regarding their potential tax liability if the property was sold and not exchanged. After forwarding the estimated sales price to their CPA, she determined that the owners would likely have to pay nearly 50% of the sales proceeds in taxes. It immediately became clear that we should perform a 1031 exchange to preserve that equity to pass on to their heirs.
When we listed the property we got a significant amount of interest. We parlayed that interest into multiple offers and almost $30,000 above asking price sale.
Since a 1031 exchange has strict timing guidelines, I recommended to my clients that we include a provision that extended the amount of time we had to close the “down-leg” of their transaction.
A Nicer Single-Family Home
Rental House in Concord, CA
My clients determined that they wanted an easy-to-own rental property that was going to attract a high caliber of renters. Their plan was to pass this asset along to their heirs. Consequently, they don’t want something that is going to be high maintenance.
Thankfully, we negotiated for more time in the contract as the market was thin on investment properties. The first property we pursued was snapped up from under our noses.
Finally, after submitting offers on a couple of places my clients got into contract on a home in Concord. Using the 1031 Exchange funds and additional capital we were able to secure a purchase with an all cash 14-day closing. This appealed to the sellers as they were in contract on another home to buy. This property is a nice 3-bedroom 2-bath home with granite countertops and a killer kitchen. My clients were more than pleased with the purchase.
Transaction Recap
My clients were able to accomplish their goal of selling a property that was causing headaches and transferring the equity into another more attractive property. This transaction allowed them to accomplish their goal of deferring capital gains tax and to provide their heirs with a more attractive investment property.
It is important to have an agent that can help you navigate the 1031 Exchange Process. If you or someone you know is thinking of selling an investment property, have them give me a call for a no obligation consultation at 925.385.8798.
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