1,436 Transactions in 2020

Monthly Archives: November 2019

What is a 1031 Exchange? And why you need it!

§1031 Exchange

Yes if you have any investment property, even if only a parcel of land and you don’t know what a 1031 Exchange is, then you are missing an opportunity to build your wealth through real estate. My goal, I want to educate all homeowners on the basics of a 1031 exchange.

First before we dive into why an exchange and who benefits from it. Let me explain the tax law we are referring to today:

What Does 1031 Really Mean…

IRS section 1031 states: No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment.

So why an exchange? Well for one, unlike a primary residence when there is gain on the sale of an investment property the owner must pay taxes on any gain. So the number one reason to exchange is to defer capital gains tax which can be quite substantial. Other reasons, sell one for another for greater wealth building. Or sell one and buy two or more.

Like Kind in a Nutshell…

Now I feel like it is important to explain what “like kind” is. Does the taxpayer have to trade like-for-like such as a condo for condo. The answer my friend, is no! Any property that is held for investment purposes is considered like kind. Readers do you catch my drift? That means you can take a residential property and grow your wealth and maybe do it through commercial or multi-units. OR say you own raw land and want to exchange into a profitable monthly investment home — all of these qualify.

When the Clock Starts Ticking…

Now exchangers beware, As a seller you must be working with a Qualified Intermediary(QI) prior to closing on either property, which we will discuss more below.  The IRS states to ensure one does not have “constructive receipt of funds” the QI needs to be involved with the closing title team and all must be done PRIOR to close on the relinquished property.

Once established, there are tight IRS timelines called the Exchange Period, which is 180 days and it starts the day one closes on the first relinquished property. Within this is a small identification window of 45days. This means the Exchanger a.k.a Seller must identify in writing a property or properties they want to purchase within this 45day time period; again this timeline doesn’t start until the day one closes on their relinquished property. Do take note, no changes are accepted after this 45th day and everyday counts even holidays and weekends.

Now this identification window seems to cause a lot of fear and stress. So it’s time to retrain your brain, time to realize if you can look ahead then you can make this process a lot easier than perceived. Once you know you want to do an exchange don’t wait to start looking. You may go into contract on the replacement property before your relinquished property closes. Then you have time to do your due-diligence and make sure all those inspections and appraisal issues don’t arise later in the process.

Who can Help With the Exchange?

Now starting a 1031 exchange is easy, once you find you want to participate in an exchange, you need to find a Qualified Intermediary (QI) also known as an Accommodator. They act as the middleman to hold your funds so you don’t receive “constructive receipt of funds” which is an IRS rule. The QI will help guide you through the process from start to finish. Another note, a title company is not a Qualified Intermediary but they can refer you to one. So don’t assume title holds the funds and be sure to get into exchange contract prior to the close of your relinquished property. Once you close on one you can’t go backwards in the process…another IRS law.

With this being said, know your facts. If you have made a substantial amount of gain on an investment property you need to know a 1031 is the only way to defer your taxes. Don’t let your gain be wasted. Wealth build and keep those dollars working for you verses paying in tax dollars!

Written by
Sheila Long

Sheila Long 

Regional Sales Executive | Old Republic Exchange Company

C:  480.341.2032 | T:  480.443.6830 -AZ | T: 818.543.6584 -S.Cal | Mitel:  45229

SheilaL@oldrepublicexchange.com 
Old Republic Exchange | Old Republic Insurance Group

OldRepublicExchange.com

With 20 years of RE background in commercial and residential, Sheila is part of the national sales team for a Qualified Intermediary dealing with 1031 exchanges.

Commercial Property Management Comes Down to Managing the Details

Commercial Property Management Comes Down to Managing the Details

Commercial property management of shopping centers, industrial buildings, office buildings big and small all come down to managing the details of each particular property. Those details can be as obvious as collecting the rent every month to paying vendors, and as small as following up on a tiny spot of peeling paint on a hugs 50,000 sq. ft. building. It takes a keen eye for flaws and attention to detail that most people would not like. If you can focus on doing all the monthly work regularly as well as how to communicate with tenants to spot potential problems with their business, then it may be the job for you.

Most property managers only focus on one area of the business if they work for one of the big property management companies. Those big companies have people that specialize in various aspects of property management like tenant retention, vendor relations, site visits, and accounting. Only the actual property manager oversees them all and is more akin to a middle manager in corporate America. I learned the commercial property management business from a developer looking to branch out into property management, so I had to learn all the skills necessary to be successful. Now I work for myself and own a small commercial property management business for 11 years now.

I am actually in talks now with a property owner that is looking to hire my company to manage his office building after doing extensive renovations on the building himself and overseeing the property for the first year and a half he has owned it. He is now looking to move on to other projects and have me manage the property as he is tired of dealing with it.

Commercial property management by trained and licensed professional takes away all the hassle of the day to day details and problems, and if the leases are written correctly, can be paid by the tenants in their monthly Common Area Maintenance (CAM) part of their rent payment. Tenants typically pay what most of us know as rent to the Landlord to lease a space in their building. Obviously, more rent in paid for buildings in the nice part of town like Scottsdale and less rent in more challenging areas like south Phoenix. Tenants also pay what is called CAM, which takes care of the landscaping, outside lights, trash pickup, maintenance of the common areas and water for the landscaping. CAM can cover all kinds of things, limited only by what is included in the leases. Another part of a property managers job is figuring out what the annual budget is for all the Common Area Maintenance items and reconciling the actual payments versus the budget every year.

In conclusion, commercial property management by a seasoned veteran of the business can make owners lives much easier and provide a valuable service for their property. My name is Mark Belyan and I own ProActive Property Management here in the Phoenix metropolitan area.

Mark Belyan
Owner & Designated Broker
ProActive Property Management, LLC
352 West Linda Lane
Gilbert, AZ 85233

Mobile: (480) 289-0444
Work: (480) 292-8606
Direct: (480) 634-4401

mark@proactivepropmgmt.com

proactivemark@cox.net

www.proactivepropmgmt.com

What is a 1031 Exchange?

For most investors commercial real estate is leveraged financially. Many of these investments grow in value due to market growth, adding value with improvements like esthetics, new or improved structures and/or good paying tenants. To capitalize on this value the investment(s) are sold and typically rolled into another bigger, better investment(s). In order to for the investor to not be taxed on these capital gains the government has vehicles(plans) in place to allow the investor to defer, put off paying these taxes. This is where a 1031 Exchange, also known as a Starker Exchange or Like-Kind Exchange, comes in to play. The term 1031 Exchange is defined under section 1031 of the Internal Revenue Code (IRC). Simply, this allows a real estate investor to shift the focus of their investing without incurring the tax liability. There are a few vehicles to choose from to defer the tax liability based on the investor’s overall strategy. This article focuses on the 1031 Exchange and a DST (Delaware Statutory Trust)

https://www.investingincre.com/what-is-a-1031-exchange
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Top Office Leases Q4 2019

Top Office Leases Q4 2019

Here is the a quick market knowledge update showing the Top Four (4) Office Leases in Q4 of 2019 in the Phoenix Market.  The total office lease transactions totaled over 645,000 square feet.  Commercial Properties Incorporated (CPI) completed 1,563 transactions for a total of consideration of 28,906,000 square feet for the year 2019.  The strong performance in the fourth quarter of 2019 was due to office vacancies trending down to 12.0% , office lease rates averaging $25.68 per square foot and net absorption being positive at 995,587 square feet.  

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