Before you purchase 1031 investment property with equity instead of money, it's essential to get advice from an expert to help lead you through the process smoothly and make sure there aren't any surprises on the way. Typically, the way equity may be employed as down-payment is done thru the property deed. You change the deed to give the seller some of interest in the property you own to serve as the deposit on the one you want to purchase.
Once this is done, the seller of the property you want to buy becomes a partial owner in the property you've used as a down payment by changing the deed. They ought to have a fractional undivided interest in the property. This type of down payment for property, as long as everything is done in the suggestions of a 1031 exchange, can still qualify everything for tax-deferment.
As long as you have qualified professionals handling the exchange for you, the documentation is done properly and the deadlines are met, your 1031 exchange should take place as normal.
While this is a way to make a deposit without having that much cash available, it could cause two problems you ought to be mindful of. First, if you're using an administrator that is not acquainted with this type of down payment in a 1031 exchange, mistakes can be made. Make sure your Qualified Intermediary is experienced with this kind of exchange, or at the least can guarantee you that everything can and will be done right.
The other potential problem is not a legal one or one that is due to documentation issues. The seller that you've made the down payment to is now a joint owner with you on that piece of property. Personality clashes, business problems and other issues could crop up that make co-owning the property hard. Before you enter into this kind of down payment situation, make sure the person you are deeding an abiding interest in the property to is somebody you'll feel at ease being in business with for an extended time period.
Once this is done, the seller of the property you want to buy becomes a partial owner in the property you've used as a down payment by changing the deed. They ought to have a fractional undivided interest in the property. This type of down payment for property, as long as everything is done in the suggestions of a 1031 exchange, can still qualify everything for tax-deferment.
As long as you have qualified professionals handling the exchange for you, the documentation is done properly and the deadlines are met, your 1031 exchange should take place as normal.
While this is a way to make a deposit without having that much cash available, it could cause two problems you ought to be mindful of. First, if you're using an administrator that is not acquainted with this type of down payment in a 1031 exchange, mistakes can be made. Make sure your Qualified Intermediary is experienced with this kind of exchange, or at the least can guarantee you that everything can and will be done right.
The other potential problem is not a legal one or one that is due to documentation issues. The seller that you've made the down payment to is now a joint owner with you on that piece of property. Personality clashes, business problems and other issues could crop up that make co-owning the property hard. Before you enter into this kind of down payment situation, make sure the person you are deeding an abiding interest in the property to is somebody you'll feel at ease being in business with for an extended time period.
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