1031: Easier Said Than Done
With the tremendous increases in property values in NYC and NJ, many long-term owners are looking to sell, and to defer paying the capital gains tax, they are contemplating 1031 tax-free options. 1031s allow investors to sell a property and reinvest the proceeds in a new one.
But these laws are among the most intricate and complex, and sellers need to assemble a team of seasoned 1031 professionals, including lawyers and brokers, to help them navigate complex case law and procedures before going to market.
Having an advocate with a deep understanding of what constitutes a like-kind exchange can expand the investor's options. This term is often misconstrued too narrowly, limiting opportunities, yet someone with years of relevant deal experience can present possibilities previously overlooked or not considered.
As a former real estate lawyer who has worked on 1031 exchanges since the 1980s, Marcus & Millichap VP David Thurston has facilitated innumerable 1031 transactions for his clients, helping them achieve more rapid portfolio growth and higher ROIs. He prides himself on being able to put together an effective team that ensures the transaction runs smoothly.
Marcus & Millichap may boast the largest inventory of properties, but David feels merely offering the best selection is insufficient. It is just as important, he tells us, for the broker to have good relations with many brokerage firms, to make certain the product is well-positioned for the acquirer. The best brokers cater to the needs of both sides of the transaction.
“Every broker thinks he can work with a seller on the upleg side of the 1031, but most don’t even know the questions to ask, nor do they know the various options for the seller to complete their 1031,” David says.
There are many factors to consider when contemplating a 1031—single or multiple properties being purchased, leverage, product types, location and more. All of these should be taken into account when formulating a strategy to deliver on the client’s objectives. David says “the most important aspect of the 1031 is the effect on the seller, and the implications for their family and subsequent generations, which is unfortunately the most overlooked factor in the transaction. That is the very first question we address.”
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