A section 1031 tax deferred exchange can be a wise investment.
It can also turn into a nightmare. Common mistakes exist.
January 30, 2006 - 1031: Alligator Blunder:
Source:
Francois Marin
There are 3 major Blunders that can turn an investment into a nightmare. It
is one’s duty to avoid these at all costs when contemplating a 1031
exchange.
Blunder #1: Dealing with a non specialized company that does not know what
it really does. Check their history of TIC offerings, ask for referrals from
satisfied clients. Ideally, they should only be doing this kind of
transactions. Are all their properties "top of the range" commercial
buildings or not? Ask how they get listings and what are their criteria to
select them. Quality properties are hard to find and sell out quickly. In
real estate, quality properties remain always desirable - low ones lag.
Blunder #2: Choosing an
Accommodator that has not done many, many of these transactions.
This Qualified Intermediary are here to make sure all the
documents and money transfers meet IRS guidelines. They are the
one that will set up your LLC. Using an Accommodator with whom
one has already a relationship, like a family attorney or estate
planning attorney is a Blunder because they may not qualify. Do
not forget, in case of bad paperwork, the IRS might send a nice
bill for taxes or penalties. As bad, the whole transaction can
fall through due to an incompetent or inexperienced
Accommodator.
Blunder #3: Negotiating too hard on the property management
company. These people are extremely important to the performance
of the investment. The investor heavily depends on them to
handle the day to day problems, carry the proper insurance, keep
the building without vacancies, in nice condition and pay the
property taxes on time.
By avoiding this 3 Common Blunders for a 1031 exchange into a
tenant in common property the investment will be a profitable
one. Ignore this piece of advice then beware of the "alligator
syndrome" (being eaten alive by hidden costs).
Francois Marin
http://www.howtofocuson.com
Section 1031 does not apply to exchanges of inventory, stocks, bonds, notes, other securities or evidence of indebtedness, or certain other assets.