Fantastic For Sale By Owner renovation in historic Avondale, open Sunday 2-4. Lemme know if you want to see it. Owner is asking $625k.  5 Beds/3Baths

Open Sunday 2-4

These homes haven’t been listed yet.  My company will be listing them shortly.

Vacant Pre-List Properties:

I’ve heard several reports recently of 1031 Tax Deferred Exchange trouble.

Here’s how a 1031 Exchange should work:

1. Principal sells property for a gain
2. Proceeds are diverted to a Financial Intermediary (FI)
3. FI holds funds
4. Princial identifies new investment
5. FI releases funds for transaction

In this case, the principal doesn’t experience a taxable event; just transfers the value into a like-kind asset.  Beautiful, huh?

Here’s the problem hitting the streets lately…  Since  financial intermediaries aren’t regulated, essentially anyone can offer the FI service and they can co-mingle funds with the operating accounts.  It all “hits the fan” when during the step 3 above, the FI’s business starts to crumble and ALL cash gets liquidated.   Then, when the Principal requests the payout for the new investment they realize that the FI is out of business and the funds have disappeared.

Needless to say, this can be devastating to investors.   It’s not uncommon for people to use a 1031 exchange with assets that are a significant portion of the their net worth and these funds are not FDIC insured (or any other type of insurance for that matter).

What does it all mean?   Well, if you’re considering a 1031 Exchange, ask lots of questions and speak to a real estate attorney prior to selecting a Financial Intermediary.

Here are some examples of questions to ask an FI:

• What other lines of business are you in?
• Will my funds be segregated from the operating accounts?
• Do you segregate funds for each client?
• Can we agree in writing that these funds will only used for my next investment transaction?
• Are you involved in any pending lawsuits?

The sad news is that all this controversy is brewing around a fantastic tax strategy that anyone can use.

The good news is that tax can still be deferred safely and without sleepless nights or antacids.  Just do your homework and talk to people you trust.

Here are some great resources for you also:

Real Estate Attorney -  David Barrett – 404-240-0007 dbarrett@ntgclosings.com

Wikipedia 1031 Info: http://en.wikipedia.org/wiki/1031_exchange

-Jeff