Real Estate Acquisition Strategies
There are many ways to acquire properties depending on client needs. Of course, the most common method is to purchase the property typically with a down payment and apply for a loan for the balance. However, in today’s complex real estate world, buying may not be the optimal method of property acquisition in light of all the risks involved with real estate. In some instances, a buyer may want to buy an option or enter into a lease with an option to buy to reduce the risks involved with a property or to ensure that he has sufficient time to complete his 1031 tax-free exchange.
Option to Buy: A real estate option is a valid contract that allows the buyer, typically with an option payment price, a specific time period to exercise his option.
Lease-Option: A lease-option allows the buyer to initially lease the premises, and at some point, he exercises his option to buy when it is convenient for him to do so. This scenario often occurs when the property being sold is not profitable or financeable or if the buyer needs to secure a property for a 1031 exchange.
1031 Tax Free Exchange: If real estate is sold, with the exception of owner-occupied homes, typically, the seller has to pay capital gains tax on any gains made on that real estate. However, if the seller identifies the up-leg property, a property that he wishes to buy within 45 days and closes within 180 days of the down-leg property, the capital gains tax is deferred.
Reverse 1031 Tax Free Exchange: A reverse 1031 tax free exchange allows the buyer to identify and buy the up-leg property and exchange into that property as long as he sells his down-leg property within six months.
Our firm works with highly qualified accommodators who can help ensure the regular 1031 or reverse 1031 tax exchanges are done timely and effectively.
Real estate is due diligence?
Due diligence consists of the time period the buyer negotiates as the preliminary period to investigate the property before any money becomes non-refundable. Some examples include:
- Title issues, including liens, easements, and encroachments,
- Escrow issues, including real estate escrow and bulk sale escrow in situations when inventory & Furniture Fixtures & Equipment are being sold with the real estate.
- Environmental issues, phase 1, phase 2,
- Zoning & land use