Being in the process for buying a commercial property, could be a mixed use, or straight commercial, I’d like to trade one of my rentals to get the deal done if I can.
Getting ready for my career after “retirement” I’ve been renting a small office space. I’d rather own, then rent. I’m now looking for a property to buy to have office space in and hopefully have other rental income from it to cover most if not all the expenses.
I have 2 rental properties, a 4 unit (free and clear) and a 10 unit (studio apartments that I have a mortgage on). The easy answer is to use the 4 unit to help get a deal done if needed. The thing is I’d like to part with my 10 unit, but if it has a mortgage, is there any way to use it in a trade for another property?
Thanks
Brian, WI
NCE for swappers
Nat’l Council of Exchangors is nat’l org for RE Agents & Brokers who’re savvy enough to be into RE exchanges, trading one prop for another.
While YOU’d like to trade what you have, this won’t happen until & unless you find that motivated owner of a prop you’d be willing to take.
NCE has nice website with a number of motivated wannabe sellers so take a look.
Brian,
Why do you want to trade? Other than restricting the number of people who might be interested what is the point?
Even if someone was to ‘trade’ they will still want to figure out the market value and then work from the numbers. In other words, the idea of trading does little to change the exchange of value that could happen if you just sold one and bought another.
There is a tax benefit if you wanted to complete a 1031 tax deferred exchange. While the phrase says exchange, most deals involve no real exchange. One property is sold and another one is purchase (maybe more than one). There is a very specific process to be followed and you need a middleman to handle the exchange. The capital gain will be moved to the new property. You also need to be trading up rather than down if you wanted to defer all possible tax. If you do trade down that is the same as a partial exchange so some of the tax is deferred and some of the tax would be due.
Do consider the present capital gains tax rate that is in effect now. By historical standards, the rate is very low now. If you defer the gain, you might keep the property until you die (inheritance tax) or you could sell later and pay the capital tax rate then.
As you highlighted the fact that the 10 unit building has a loan secured by it, is there any penalty or extra cost if the loan is paid off in a sale (or even in an exchange)?