Exchanging in a “hot” real estate market is just as relevant today, as it was in 2017 when Northern 1031 Exchange Senior Vice President, John Starling, wrote this article for the New England Real Estate Journal. Selling a property in the current hot real estate market is the easy part. Buyers are plentiful and offers are high. However, securing a replacement property to buy in a hot market, with the added pressure of a 45-day identification period and 180 exchange, is where it gets tricky. With quality properties going over asking price and often in bidding wars amongst multiple buyers, securing a replacement property within the allotted identification period can be a real challenge.

In this article, Starling offers a possible solution to consider. He details the differences between the forward exchange and the reverse exchange. He explains that a reverse exchange allows a real estate investor to find and purchase a replacement property before selling the property to be relinquished, which is a key benefit for investors in a hot real estate market. He discusses the safe harbor guidelines for a reverse exchange and how to structure one properly so that you meet the IRS guidelines.

He also addresses the risks you need to consider when choosing a reverse exchange structure and how to weigh both the risks and the benefits; the biggest benefit being, reverse exchanges allow investors more time to locate their desired replacement property. Lastly, Starling emphasizes that using a reverse exchange can help an investor secure the perfect replacement property, so they can preserve their profits and build their wealth faster.