Reverse 1031 exchange loans are a great way for brokers to leverage their expertise in a competitive market, and is just exotic enough to set you apart from the pack. A reverse 1031 exchange loan enables your clients to act quickly in competitive real estate markets. Like a standard 1031 exchange, a reverse 1031 exchange lets an investor defer capital gains taxes. But the advantage is that a reverse 1031 exchange loan lets the borrower secure a replacement property before selling, therefore avoiding rushed decisions.
Tax benefit with a twist: The reverse 1031 Exchange
A standard 1031 exchange, named for its section of the U.S. tax code, offers a sweet deal to real estate investors: If you sell an investment property for a taxable gain, you can defer the taxes by rolling the proceeds into a similar property. A reverse 1031 exchange goes a step further – it lets the investor buy the replacement property first, while still deferring capital gains taxes on the sale of the original investor property. This is a great option when an investor finds an ideal replacement property that they don’t want to miss out on, but they haven’t yet sold their original property. The investor has 180 days to sell the original property. The funds from the sale are used to repay any loan secured for the acquisition of the replacement property and to complete the reverse exchange.
1031 Reverse Exchange in Action
An investor wants to buy a $950,000 investment property in Charleston, South Carolina, but she knows that it will sell fast. She also owns a rental property in Miami, valued at $800,000, with no mortgage, which she intends to sell. However, the sale of the Miami property will take place after the purchase of the property in Charleston.
To defer capital gains taxes on the sale of the Miami property, the investor needs a reverse 1031 exchange.
Financing a Reverse 1031 Exchange Using LendSure’s Bridge Loan Program
Since the Miami property hasn’t sold yet, the investor needs cash to close on the Charleston property. With LendSure’s Bridge Loan, the borrower/investor can borrow against the equity in the original investment property.
Because the funds from the sale of the original property are tied up until that home sells, a LendSure Reverse 1031 Bridge Loan provides the funds to buy the replacement property. LendSure’s Bridge Loan is a “no payment due until sale” loan – it’s structured as a six-month term loan due at sale or the end of six months. The property this loan is leveraged against must be listed for sale at the time the bridge loan is granted. LendSure lends up to 60% LTV on an investment/cash-out property – so, in this example, up to $480,000.
By tapping the equity in the original investment property, the borrower can use those funds for a down payment on the replacement investment property. The remaining money needed for closing will come from a purchase money transaction on the replacement investor property. LendSure’s Bridge Loan program requires the borrower to finance the replacement investor property with LendSure.
*The tax-related information contained herein should not be construed as tax or legal advice and should not be relied upon in making any business, legal, or tax-related decisions. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often requires advice from a competent tax and/or legal advisor familiar with details of a specific transaction, objectives, and the relevant facts. The involvement of a tax and/or legal advisor (or to seek such advice) in any significant real estate or business-related transaction is strongly recommended.
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers ratios, and data to consider, but we know that behind every file, there’s an individual with a unique circumstance seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently-owned property.
Are you ready to benefit from a common-sense approach to lending? Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.
