A 1031 exchange lets an investor defer capital gains tax by rolling proceeds from one investment property into another of like kind. The mechanism is well understood. What catches people out is the timing.
Two deadlines, both strict
From the day your sale closes, you have 45 days to formally identify replacement property, and 180 days to close on it. Both clocks start on the same day and run concurrently. They are not generally extendable.
Forty-five days sounds like enough time. It is not, if you begin the search after closing. Between touring, underwriting, negotiating and getting into contract, most buyers who start cold run out of runway and end up identifying something they do not really want.
What experienced exchangers do differently
- They start looking before the sale closes. Ideally before it is even in escrow.
- They line up a qualified intermediary early. You cannot take receipt of the proceeds — a QI must hold them, and that has to be arranged before closing.
- They identify more than one property. The rules permit identifying up to three without regard to value. Naming a backup is free insurance.
- They ask about the rent roll, not just the cap rate. A headline cap rate built on shaky tenancy is not a durable place to park deferred gain.
Why Downtown Los Angeles suits exchange buyers
Stabilised, income-producing commercial property in an established corridor is exactly what the replacement-property requirement is looking for. Downtown assets also tend to offer something a stabilised suburban asset does not: repositioning upside. A building fully leased on month-to-month terms lets a new owner move rents toward market without waiting out long leases.
If you are approaching an exchange and want a candid read on what is available and what it is really worth, call us before the clock starts. That conversation costs nothing and is considerably more useful on day minus-thirty than on day forty.