Commercial Investments and Timing a Tax-Deferred Exchange

We’re going to focus on commercial investments and timing a tax deferred exchange. Thank you so much for checking out the Real Estate Today podcast.

I’m Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments.

And I’m Marcia Edwards, Residential Broker with Windermere Real Estate. Let’s talk a little bit about the market and opportunities in commercial investment. That’s your wheelhouse Bob.

Bob Nelson: That is my wheelhouse, in fact if there was a transaction that I specialize in, it’s the tax deferred exchange, where individuals can sell the property, a qualified property that they own, but would prefer to own something different. We can sell that and buy a replacement property that they would rather have, and if we do it exactly right, and by the rules, we get an opportunity to not have to pay the capital gains’ tax or depreciation recapture to the federal or to the state government.
So you get to use all of your equity to buy the next property.

Marcia Edwards: And you’re buying the next property, you’re going to have more cash into it, have a better return immediately. So deferring it has values at multi levels. What I’m seeing, and actually just yesterday I got a call from another residential broker mine, asking me if I had any multi family properties listed for sale, because the clock was ticking, and their client had not yet identified, they were just running out of time.

I’m wondering, how could you prevent that crisis right now? We’re short on supply, and you wanna replace the property. How does that work? I don’t understand how, in this market where it’s so biased without inventory, for you to be successful.

Bob Nelson: Well buyers of … sellers on an exchange looking to become a buyer, will suggest that they want to buy, or at least have under contract their replacement property, before they offer their down leg, or the one that they’re getting rid of, property for sale. Which is nice in concept, the only problem is if I am the listing broker on the property that they’re after, I’m going to ask, “Is this an exchange?” They’re going to say, “Yes, it is,” and I’m going to ask, “Have you sold your down leg property yet?” They’re going to say, “No we haven’t.” At which point, I consider that offer to be frivolous in nature, because they don’t have the horse power to buy the thing right now. So I don’t necessarily take my property off the market at that point, until they have a proven capacity to close.

So it’s a catch-22. If you are thinking in terms of an exchange, of doing a tax deferred exchange, get ahold of an exchange experienced broker that is good at the property type that you’re after. Make sure that you do that about two months in advance of the time that you sell your other down leg property.

Marcia Edwards: I’m Marcia Edwards, Windermere Real Estate.

Bob Nelson: And I’m Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments

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