Exchange Types
There are several different types of 1031 Exchange methods, each with its own set of rules and guidelines. Speaking with your expert and qualified intermediary or lawyer is the best way to determine which exchange is best for you; however, you can use the information below to get an idea of what you might need:
Forward (Delayed) Exchange
This is the most common type of 1031 Exchange, during which you sell what you have (your relinquished property) and then replace it with a similar type of property (your replacement property). This is most commonly known in the industry as a “1031 Exchange” and originally known as a “Starker Exchange”.
- Benefits: You get a maximum of 180 days to buy your replacement property.
Reverse Exchange
In this type of 1031 Exchange, you dispose of your relinquished property and acquire your replacement property before the former is sold. Thus, you must close on the replacement property before finding a buyer for the relinquished property. This option can be extremely capital intensive.
- Benefits: Allows you to find a solution to transactions that may be impossible otherwise.
Improvement Exchange
This type of exchange allows you to use your 1031 Exchange proceeds to buy the replacement property and use them to improve the replacement property.
- Benefits: Cuts down replacement property acquisition and improvement costs.
Simultaneous Exchange
Also known as a Concurrent Exchange, the Simultaneous Exchange is the oldest method of performing a 1031 Exchange. It occurs when you dispose of your old (relinquished) property and immediately acquire your new (replacement) property.
- Benefits: Works more quickly than other types of exchanges.
Build-to-Suit 1031 Exchange
Similar to the Improvement Exchange, this type of exchange allows you to use your 1031 Exchange proceeds to acquire and improve the replacement property. You can sell off your relinquished property and use these proceeds to improve your replacement property, driving up its value.
- Benefits: Cuts down costs and combines different types of exchanges for maximum profit.
Determining which type of exchange will work for you depends on several factors, including if you have partners involved or if you’re a new investor, and if you want the support of a qualified intermediary. There are also modifications to each of the exchange types, such as Delayed Exchanges that have seller carry-back financing.
To learn more about what 1031 Exchange options are available to you, contact 1031Guarantee, Inc. for more information.