Bob Nelson – The Improvement Exchange

Thanks for checking out the Real Estate Today Podcast. Right now we’re going to talk about the improvement exchange.

Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker

Marcia Edwards: We’ve been talking about the 1031 exchange, and that’s to all you investors out there who hold investment property, but not the optimum opportunity for you individually. So you want to rate your portfolio and get the highest return. However that looks to you, where you’re at in your career, in your investment career. In doing so, you move the money from one investment property to another-

Bob Nelson: Right, the equity, right.

Marcia Edwards: And if you move the equity properly, it’s not a taxable event on the gain from your sale.

Bob Nelson: That is correct. There’s also an opportunity, we hadn’t mentioned it prior show, the improvement exchange, which is an interesting one. The property that I would like to acquire needs to have something done to it. For instance, a new roof, new siding, maybe adding a unit, nah let’s not get there, that takes too long. But how would I go about using tax free, tax deferred, untaxed sale revenue, from the sale of my relinquished property, to make those improvements on the replacement property? That’s the key. Because if I can use that, and not have to pay capital gains tax on the cash from the sale, I’ve got the full amount of sale proceed, the full amount of equity to deal with the next property.

Marcia Edwards: I think it’d be difficult if you held the property for a long period of time and then decide you want an improvement, that’s not the same thing. The improvement would have to happen, they probably have rules in regards to how far after the close of escrow on this purchase?

Bob Nelson: Well, actually what you’re going to do is have an exchange accommodator acquire the property, hold it, use the net sale proceeds to do the improvement to the property, and prior to the hundred and eightieth day deadline of the 1031, hand it back to you in an improved condition.

Marcia Edwards: Okay. So you actually are doing it as part of an event of the sales so to speak.

Bob Nelson: Right.

Marcia Edwards: Okay.

Bob Nelson: You have to use an exchange facilitator, exchange accommodator, to accomplish that.

Marcia Edwards: And new construction is also an option, correct?

Bob Nelson: That is an option, but the problem is if you got 180 days, if you’re trying to get anything approved from scratch, the building permit takes you how long? Let alone the construction after that. You might have the concrete foundation laid, but that’s about it.

Marcia Edwards: You’ve got to have some good momentum, and be vertical, and substantially complete it, I think is what they say at the 180th day.

Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30 on KPNW for the “Real Estate Today” radio show.