REVERSE 1031 EXCHANGES

Reverse 1031 exchanges are used when you must purchase your replacement property before you can sell your relinquished property.

Banks are not real keen to lend money to an entity, the LLC, when the guarantor (you) is not a member. This is because you cannot have constructive receipt of real estate, or cash, during a 1031 exchange.

Many reverse 1031 exchange investors will often fund the purchase themselves but there are a few banks that understand reverse 1031 exchanges and will participate. These arrangements need to be handled right away with whomever your funding source shall be.

Federal Tax Identification numbers must be obtained, an LLC must be formed at the State level, funding must be secured and all exchange documents and title company instructions need to be prepared. This takes more time than your traditional forward exchange.

Reverse exchanges are often allowed, even if they go outside the 180 day total closing period (known as a Safe harbor). The reason for this is that you as a seller really have little control over how long it takes to sell your property and if you followed all of the 1031 regulation guidelines there is a good chance it won't be disallowed even after 180 days.

Usually it's because the property they would really like to acquire will not last on the market long enough for their relinquishing property to sell and they would miss the opportunity.