Top Mistakes To Avoid for a Successful 1031 Exchange Deal

Piggy Bank and House Model1031 exchanges could be very beneficial despite the stress and complications they could entail. The IRS permits like-kind property exchanges to enable exchangers to obtain government loans that could be very advantageous, provided that you meet all eligibility requirements and go about the entire process the right way.

Sometimes, however, the need for a viable property and timing could make for more complex exchanges. This is why it’s crucial to avoid making these mistakes for a smooth and completely legal 1031 exchange:

Selecting The Wrong Property

When picking a property, take into account the price, region, potential returns after taxes and cost, asset type, tenancy length, management level, escalations, as well as other relevant terms, advises 1031 Exchange Place, a qualified 1031 exchange intermediary in Idaho. While net lease properties are usually the easiest to evaluate, purchase, and manage, it’s best and legally required to get professional help to go about the entire process.

Not Negotiating The Right Terms

Do note that market terms change all the time, and experienced property investors could easily determine whether a purchase would be a good or bad deal. That being said, not negotiating the right terms could ruin a potential deal. At the least, you need to determine the current standard due diligence, closing terms, and who pays for what, among many other things.

Miscalculating The IRS Timing

As per IRS rules, you need to name the replacement property formally within 45 days and then close within six months following the relinquishment of your exchanged property. Usually, buyers formally name at least three replacement properties or about 200% of their expected costs.

Plenty of buyers initially think that they could shop around for 44 days of the 45-day time limit, submit their list, and then just use the remaining time, which is around 4½ months for negotiations and closing. But if you fail to get one of your named properties under contract within the allotted period, the seller would have all the leverage. You could derail your 1031 exchange and would have no say if the seller decides to modify the agreed-upon terms.

Although 1031 exchange deals could be quite complicated, hiring an experienced and qualified intermediary won’t cost you extra, ease your burden, and ensure that you close successfully on your desired property. So, avoid making the mistakes mentioned above to help ensure that you get the most out of your 1031 exchange deal.

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