Investor Information: 1031 Exchange

Sbrana Equity Group specializes in medium and large multifamily investment opportunities (8 units and above) for 1031 Exchange clients.

1031 Exchange Explained

A 1031 exchange, also known as a like-kind exchange, is a tax-deferred transaction that allows an investor to sell a property and reinvest the proceeds into a similar property without paying capital gains taxes on the sale. The exchange must meet certain time sensitive requirements: The investor must identify a replacement property within 45 days of the sale of the original property. The investor must then complete the purchase of the replacement property within 180 days of the sale of the original property. The replacement property must be of equal or greater value than the original property, and any debt on the original property must be either paid off or replaced with new debt on the replacement property.

Investor Responsibility

Investors who express interest in this type of real estate opportunity would need to qualify for a mortgage using one of our preferred lenders, or their own. Sbrana Equity Group will search for and identify properties that fit the 1031 investors buying criteria. Once identified, the investor can present the property to their qualified intermediary within 45 days of the sale of their previous property. To secure their position as owner/investor, the individual or group of investors would be responsible for the Earnest Money Deposit which is generally 1% of the purchase price (and it is 100% refundable if the deal falls through). Upon closing they are responsible for transferring the capital required to fund the deal through their qualified intermediary. They would also be responsible for their own tax situation.

Sbrana Equity Group Role and Responsibilities

After understanding the 1031 investors specific buying parameters, Sbrana Equity Group will search for and identify properties that fit the 1031 investors buying parameters. From there, Sbrana Equity Group will serve as the operator of the property for the life of the project unless otherwise agreed upon. They will be responsible for any and all renovation, property management, tenant search and placement, rent collection, maintenance requests, unit turnover, investor payouts, tax document distribution, LLC documentation and upkeep, selling process, and anything else associated with the ongoing operation of the project. The investor should have very little, if any, ongoing responsibility of the project. An investors primary responsibility is to invest the initial capital, and collect their cash flow. Everything else will be handled by the operator.

Project Hold Period

Investors should expect to hold the property for a minimum of 7 years; however depending on the entity structure and percentage control the investors holds, they could have full autonomy to sell at any point. Sbrana Equity Group simply recommends they hold for a minimum of 7 years to ensure maximum profitability.

Annualized Returns for 1031 Exchange Investments range from 17.00%-28.00%

Every 1031 Exchange investment property is unique and may offer varying returns depending on a number of factors. The annual return expressed above is the combination of cash on cash return from the cash flow received, and any profit from the sale of the property on a 7 year and 10 year sales analysis. Sbrana Equity Group uses “cash on cash return” and Average Annual Return” (AAR) as the two main metrics to analyze deals/project returns.

Sbrana Equity Group strategically targets underperforming assets that can be renovated or improved upon in order to reach maximum profitability both in short term cash flow and long term sales price.

We work with lenders who wrap renovation costs into their mortgages so 1031 Exchange clients don’t have to come out of pocket for renovation costs on the new property.

If you have other questions or you are interested in investing, let’s set up a time to talk more!