Thursday, June 25, 2009

Buying an Installment Note as Like-Kind Replacement Property in a 1031 Exchange

Buying Troubled Installment Notes
Recently I heard a discussion about selling real estate and the desire to acquire a troubled installment note as part of a 1031 exchange. The person indicated that they wanted to buy troubled notes (installment notes) at discounted values from financial institutions. The notes were in the foreclosure process, and the person wanted to acquire the loans today so they could end up owning the actual real property at the completion of the foreclosure proceedings.

Buying Loans in a 1031 Exchange
He said he wants to dispose of real property that he already owns by structuring a 1031 tax deferred like kind exchange, and then wants to buy the installment notes (loans) from the financial institution as his like-kind replacement property to complete his 1031 exchange.

Two 1031 exchange Qualified Intermediaries that he had approached about doing just this said the proposed 1031 tax deferred exchange transaction doesn't work for tax deferred exchange treatment under Section 1031 of the Internal Revenue Code because the promissory notes (loans) were in fact personal property and not real property.

Significant Value Lies in Expertise and Experience
The responses received from the two Qualified Intermediaries appear to be correct when viewed at the surface. He is going to dispose of real property, so it stands that he must buy real property to qualify for 1031 exchange treatment.

There is a creative way to structure the proposed 1031 exchange transaction so that it does in fact qualify as a 1031 exchange transaction. The strategy is very easy. The 1031 exchange strategy combines the concepts of the Reverse 1031 Exchange parking structure and the Build-To-Suit 1031 Exchange improvement strategy.

Parking Structures in a Reverse Exchange
He can use a Reverse 1031 Exchange parking structure under Revenue Procedure 2000-37 where the installment note (loan) is bought and "parked" or held by an Exchange Accommodation Titleholder as the intended replacement property.

The installment note (loan) is currently personal property. It is clearly not real estate, yet.

Improvement Exchange Strategy
Real property is very often bought and held by an EAT. The real property is then improved by the EAT, generally through some form of construction. The real property is then conveyed to the party completing the 1031 exchange once the improvements have been made. This 1031 exchange strategy is referred to under many names, including: Improvement Exchange or a Build-To-Suit Exchange or even a Construction Exchange.

The Improvement Exchange strategy can be structured for his proposed 1031 exchange. The installment note (loan) would be bought and held by the EAT. The EAT would "improve" the property by following through with the foreclosure. The EAT would end up holding title to real estate upon the completion of the foreclosure. The real property can then be conveyed to him and his 1031 exchange would be completed.

You really can buy an Instalalment Note as part of your 1031 exchange provided the replacement property received in the 1031 exchange is an interest in real estate.

Wednesday, June 24, 2009

Federal Reserve Holds Policy Steady; Less Worried About Deflation

Tuesday, June 23, 2009

We Are Celebrating our 5th Anniversary Today

5th Anniversary of The Exeter Learning Institute Today
We launched The Exeter Learning Institute Blog back on June 23, 2004 in order to provide real estate investors with thoughtful and educational real estate information so that they could make better informed investment decisions. And, we have been blogging ever since.

The 1031 Exchange Institute
We have received so many positive comments from loyal followers over the years that we decided to launch another blog that was specific to 1031 exchange related matters, and was later expanded to include tax-deferred related matters.

The 1031 Exchange Institute was launched on November 14, 2006, which included information, blog posts, and our first discussion board. The 1031 Exchange Institute far exceeded our expectations in terms of visitors, discussions and posts.

We wanted something that was more interactive, though, so we decided to roll out a real estate focused Discussion Board with numerous real estate related Forums.

The Exeter Discussion Board
We launched The Exeter Discussion Board in August 2007. Discussion boards can be very tricky, and most never really take off. But, we were pleasantly surprised when The Exeter Discussion Board far exceeded our expectations. In fact, it just recently surpassed its 1,000th post and 300th registered user.

Thank you for following our blogs.

Monday, June 22, 2009

More Good Economic News: Housing Starts Increased Sharply

Economic & Market News from Goldman Sachs & Company
I'm reposted some of the economic comments published by Goldman Sachs & Company in their Weekly Market Monitor dated June 19, 2009. As you can see, there is some really great news contained in their comments.

Housing Starts Increase Sharply
Housing starts increased sharply in May, up 17.2% (-45.2% yoy). Multifamily starts were a major driver, rebounding 61.7% after a 50% decline in April. Permits also increased, up 4%. Here, single family permits were the driver, up 7.9%.

Producer Price Index
The producer price index rose 0.2% in May (-5.0% yoy). Core PPI edged down 0.1% (+3.0% yoy). The core weakness appears genuine given that it was fairly widespread and not centered in normally volatile components.

Industrial Production Fell in May
Industrial Production fell 1.1% in May (-13.4% yoy), due mainly to difficulties in the auto sector. However, weakness continued across major categories. Reflecting the ongoing drop in production, capacity utilization fell to 68.3%, another all-time low. These readings make sustained upward price
pressure in the goods sector unlikely.

Consumer Price Index Rises
The Consumer Price Index rose a meek 0.1% in May (-1.3% yoy). Often errant food and energy were subdued, at +0.2% and -0.2%, respectively. Core CPI registered higher 0.145% (+1.8% yoy). Most components registered price declines with only vehicle prices surprising to the upside. Overall, the report paints a picture of prices that are largely in check.

Continuing Jobless Claims Fall
Initial jobless claims remained essentially unchanged at 608,000 last week, while continuing claims fell sharply and unexpectedly by 148k to 6.7mm.

Friday, June 19, 2009

Looking for a 1031 exchange webinar? Look no further. Learn the basics at:

Thursday, June 18, 2009

Looking for a 1031 Exchange Webinar? Here you go: