Finding a Replacement Property for a 1031 Exchange

Lots of investors from the Bay area call top-producing Sacramento real estate agents when they decide to sell — which is how I end up working with many of them — and the shift I spy on the horizon now is to 1031 exchanges. You might not know this, but I got my start in real estate in the 1970s by working solely with investors, many of them first-time investors. I sold investment properties exclusively for about 9 years, and I moved into real estate from my certified escrow officer position, during which I processed and closed a large number of 1031 tax deferred exchanges.

It’s funny how some things can come full circle. Now that the market in Sacramento is picking up, more investors have equity and some of them want to put that equity to work elsewhere. They don’t want to pay taxes on the sale of their investment property if they don’t have to, and most of them don’t as long as they find and identify a replacement property within the 45-day period and effect a 1031 exchange. (There are minor sub-rules that don’t apply to very many, so I won’t go into those.) The more important rule is an investor has 180 days to close escrow.

My new clients have a rental home in Elk Grove they want to exchange. They don’t live in the area and have discovered how difficult it is to manage an investment property without family nearby. A drive into Sacramento from the Bay area can take 2 to 3 hours each way. Some investors might prefer to move their equity to another town.

A 1031 Exchange wouldn’t be such a nagging problem if we had more inventory in Sacramento. I try to explain that investors actually have about 75 days, if you look at this systematically. Once an offer is received to buy the investor’s rental property, that escrow period is about 30 days, give or take. That means 30 days + 45 days = 75 days. But people, being people, sometimes look to the worst case scenario. Like, what happens if they can’t find a replacement property?

Being in real estate, I know they will find a replacement property for a 1031 Exchange, even if they’re looking out-of-area, because I know real estate agents and how the business works. But that doesn’t help the investor if they’re not standing in my Jimmy Choos, and looking at this from my viewpoint.

This is yet one more reason why we need more inventory in Sacramento. To give investors an assurance that they can find that replacement property, and two more properties along with it as a backup. If you’re thinking about deferring taxes on the sale of your investment property, talk to your accountant and then call this Sacramento real estate agent, Elizabeth Weintraub. I’d love to help you to locate a qualified intermediary and sell your investment home, 916.233.6759.