A delayed exchange is where you sell an investment property you currently own after setting up the exchange and qualified escrow. The next step is to identify replacement properties within 45 days of the initial sale and then close on one, or more, of those properties within the 180 days total exchange period.
Delayed exchanges are the least expensive and least complex which is why they constitute well over 90% of all the 1031 exchanges performed in this country.
A build-to-suit exchange is where you sell an investment property you currently own and plan to complete construction of a new property within the 180 day exchange total time period. These exchanges are much more complex and require the formation of Exchange Accommodating Title Holding Units (EAT's).
In a build-to-suit exchange the Qualified Intermediary must get a Federal Tax identification number and set up an LLC in the State to hold property and disburse funds while the construction is occurring. The Qualified Intermediary must form entities, request TIN's, file a tax return and act as a paying agent and disbursement agent during the exchange.
The property is subsequently titled back to the Exchangor once the build-to-suit unit has received a certificate of occupancy. To avoid the IRS provisions on constructive receipt of cash or property all cash and property must be held inside the EAT until the exchange is completed.
Build-to-suit exchanges are complex transactions and can range is price from $2,000 to $10,000.
A reverse exchange is where you acquire a replacement property prior to the sale of your relinquished property. Once again, the acquired property must be held by an Exchange Accommodation Title Holding Unit until your relinquished property sells.
Financing can become the most complex part of performing these exchanges and it takes banks with a reasonable degree of sophistication to accommodate the loan requests on these types of exchanges. Fortunately we know several that are very experienced with this type of transaction.
If the acquired property will be rented then the Exchange Accommodating Title Holding Unit must receive and account for all rents until the property is deeded back to the Exchangor after the relinquished property has sold.
Reverse exchanges are very complex transactions that require the Qualified Intermediary to acquire TIN's, form an LLC in the State where the exchange is occurring, act as an accounting and disbursement agent, file tax returns for the LLC and many details.
The complexity of reverse exchanges generally means these exchanges can run from $5,000 to $7,000.