When Would An Investor Use A Reverse Exchange

 

 

I’m often asked that question.  It’s a good question, because reverse tax-deferred exchanges are much more complicated and much more costly to complete. 

 

The answer is simple: the reverse tax-deferred exchange provides significant strategic value when planning and structuring an acquisition of real property. It allows the investor to acquire their new investment property first before they have sold their relinquished property.  So, anytime an investor is faced with the possibility of having to acquire or wanting to acquire his or her replacement property first, they should consider using the reverse tax-deferred exchange. 

 

The reasons that an investor might consider using a reverse tax-deferred exchange vary, and may include:  

 

The simplest reason is that they want to eliminate the pressure involved in a regular tax deferred exchange due to the tight exchange deadlines; or

 

They may find suitable investment property when they least expect it and they do not have time to sell their relinquished property before they must buy and close on their new investment property; or

 

The disposition of their relinquished property falls apart and they decide to proceed with the purchase of the replacement property so that they do not risk losing the opportunity; or

 

Sophisticated investors often implement reverse tax-deferred exchanges for each real property purchase and the decide if they will dispose or other property and match it to the purchase of the new property as part of the reverse tax-deferred exchange, or

 

It puts the investor back in the driver’s seat knowing they can take all the time they need to locate suitable investment property, perform the necessary due diligence, and close on the transaction with out the stress of the typical exchange deadlines.  

 

This also helps to reduce his or her risk because they have already acquired the replacement property and can now focus exclusively on disposing of his or her relinquished property since the replacement property has already been purchased through the reverse tax-deferred exchange.