The MHP Expert Podcast is back for another eye-opening, information filled episode. As always, Glenn is joined by Jason Sirotin. The show begins with Jay listing off some of Glenn’s biggest credits to date! “In the 20 plus years Glenn has been in commercial real estate, he’s brokered $100,000,000’s worth of” properties. This includes “affordable housing apartments, manufactured housing, and RV communities throughout the US.”
Looking for an even deeper dive into his expertise on the mobile home space? Check out The Mobile Home Park Manifesto, a wonderful piece of literature full of gems. Today’s episode will explore 1031 exchanges, and what the future may hold for them. Special guest Michael Brady of Madison Exchange, aka Madison 1031, also joins to weigh in. Michael is the president of Madison 1031. They offer guidance on managing 1031 exchanges. They can help with any information, statutes, etc., related to the swap.
Tracing The History of 1031 Exchanges
As Michael states, “tax deferred exchanges have been part of the tax code since the 1920s.” For a century, this has been a viable way for property owners to swap their real estate. It works when there are two interested parties. Both have properties for sale. There’s a chance the pair could be interested in one another’s listing. If they “traded deeds, that’s automatically a tax deferred 1031 exchange.” This makes the process of merging such an opportune moment almost painless. It eliminates any need for costly middle men, and there are no monetary exchanges.
1031 Exchanges also help relieve tax burdens, allowing property owners more financial flexibility. How does it do this? Well, it boils down to perspective. In this case, the trade would be viewed as a continuation of their existing investment. This is in contrast to an ROI (Return On Investment), which would otherwise be taxed. The rule can be a very helpful one up, but the scenarios have to align. According to Michael, it’s a rare occasion in the current real estate climate. Aside from agreeing on each other’s properties, there are remaining bills to consider.
Michael goes on to discuss the roles of qualified intermediaries. They are the go-between in a typical property trade. “For tax purposes, [a seller] would give his property to a qualified intermediary. [They] would then sell the property to [the buyer].” Basically, the go-between buys the property and then recoups when selling it to the buyer. While there are quite a few fees that can arise through this process, it still saves both parties a lot of stress.
A Fair Trade
Another common question in 1031 exchanges is what qualifies as an even swap? Glenn notes how the process has evolved in this way over the years. It used to be that people’s assets had to match completely. Then it went to “like-kind… to now today… it just has to be commercial property for commercial property.” The lines can even be blurred to include some residential spaces.
The MHP Expert
Check out the rest of the podcast above. If you have any further MHP questions, feel free to contact us today!
Episode 33: The Future Of The 1031 Exchange from Glenn Esterson, The MHP Expert on Vimeo.