1031 Exchanges: A Hidden Opportunity In Plain Sight


If you’re like most property owners, you either don’t know about 1031 exchanges or have the wrong ideas about them. Imagine you thought you had the right idea about them and you did not. This a real problem with many investors and their teams.

It gets worse. If you don’t know enough or have the wrong ideas about a 1031 exchange, you are probably missing the Hidden Opportunities in plain sight.

The simple fact is this: if you don’t do them often, you probably should consult a professional who does. Even better, hire an Intermediary that provides education to you and your investment team.

In this post, we’ll take a look at:

  1. The Concept
  2. How do you Qualify
  3. How do you find the Hidden Opportunities
  4. How do you take advantage of it
  5. Next steps

1. What is the concept?

Here’s a simple way of thinking about the 1031 exchange. It’s like playing Monopoly® for real. It’s not about getting out of your taxes!
Think about the goal of Monopoly®…to build wealth by adding more properties that produce more income.

For example, if you take your 4 “Green Houses” you own on “New York Avenue” and “exchange” them for the “Red Hotel” you will increase your income in the game from a low of $16 to a high of $1,000 every time someone lands on your property. Now imagine you do that with real property!!

In the real world, you would have to sell each of your 4 houses and pay taxes on the profit of each sale before you could combine the money to buy the larger property. This is known as Capital Gains taxes. There are also other taxes like Depreciation Recapture as well. The issue is that the taxes would reduce the amount of money you have to buy the larger property, thus reducing the amount of income you can make.

The 1031 Exchange is a section of the Internal Revenue Code (IRC). It allows you to indefinitely defer your taxes on the capital gains (or “profit”) of the real estate sale, by “exchanging” qualified properties for others of the same value and investment or business usage. In the Monopoly® analogy, the 4 houses combined are of equal value to the hotel and all are used for investment (collecting rent).

2. How do you Qualify?

You qualify to take advantage of this if you are a U.S. Taxpayer. Foreign Nationals may qualify if they take certain steps well in advance. They should contact their tax advisor for details. If needed, I can recommend several for you. This information is provided by The Private Exchange Group, Inc. as a general guide to understanding 1031 exchanges only. The Private Exchange Group, Inc. does not give legal or tax advice. You should contact your attorney, accountant or other financial advisor for legal and/or tax advice.

Any of your real estate properties qualify if you use them for business or investment. If you are “flipping” properties or using them personally beyond the requirements for investment you have to pay your taxes from the sale as they are not qualified for a 1031 Exchange.

3. How do you find the Hidden Opportunities?

It’s simple. Take a look at your portfolio. Ask yourself some of the following questions:

  1. Are your real estate holdings performing to your standards?
  2. Do you want to get more return out of them?
  3. Would you like to move them to different areas, types, sizes?
  4. Would you like to diversify or consolidate?
  5. Do you want to use leverage to increase the income of your assets?
  6. Do you own land and would like to exchange it for something that produces a monthly income?These are just some suggestions to get the conversation going. The 1031 Exchange can allow you to make changes to your real estate investment portfolio while helping to preserve the equity you’ve built up.

4. How do you take advantage of it?
After you analyze your portfolio, you may find the need to make some changes. If so, here are some steps to consider:

  1. Contact your real estate broker
  2. Contact an Intermediary.
  3. Have a Strategy meeting. You need to have a clear understanding of the 1031 rules and process relative to your goals.
  4. Decide what properties you would like to exchange into.
  5. Hire the Intermediary.
  6. Put your properties to be exchanged on the market

5. Next Steps

  1. Analyze your portfolio and look for hidden opportunities to increase and/or strengthen it.
  2. Educate yourself and your professional team on the 1031 exchange. Please don’t let yourself or others think that you know the concept and that is enough. In MOST cases it is not. If you are not actively doing this, I HIGHLY recommend you start from the beginning and let an Intermediary walk you through the rules and process relative to YOUR situation. The 15 minute call/meeting will be well worth the time. Please remember that this is simple until it’s not. A simple misunderstanding can cost lost equity opportunities, large tax bills, time and potential income or more.
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Impact Glass – More than Just Hurricane Protection


When living in south Florida, there are a few things of which you can be certain. One of them is that our winter weather is great and sure beats the cold and snow that’s part of so much of our country for 3-6 months every year.  The second is that over time, our summer weather will include some very heavy storms and on occasion, a hurricane.

Working in real estate, sellers and home owners often ask me, “What are the best ways to enhance the value of my home?”  Many times my answer is to do little in the way of updating the home as more often than not it doesn’t increase the property value and I hate to see my clients put good money into bad. The one suggestion for all upscale properties that I make is, if you don’t have impact windows throughout the home, this is one investment they should consider.

Impact windows that meet current building codes are critical underwriting components for luxury home buyers, as most domestic high net worth insurance companies are reluctant to provide hurricane coverage on luxury homes that do have a qualified windstorm protection system.

The payback on you​r impact window investment is both obvious and subtle. First, there are substantial savings for having impact windows on your home, especially since the hurricane insurance rates have skyrocketed over the past several years.

Another, but more subtle reason is that a growing number of buyers of luxury homes are coming to the Palm Beaches to buy a second home​, where they’ll spend the winter months enjoying golf, tennis and ​our beautiful beaches. These buyers of exclusive properties go north during our hurricane season, and they aren’t interested in being bothered to secure their homes by having to put up storm shutters. Impact windows are the trouble free way to solve that problem.

I mentioned savings, and to put that reference into context, Mark Montgomery with the Celedinas Insurance Group told me of a recent situation in the Palm Beach market where Citizens Insurance, the primary carrier in south Florida, did not renew a windstorm policy with an $8000 annual premium because the home in question exceeded their new $1-million policy limit.

The owners were able to get coverage from Lloyds of London at an annual cost of $30,000. If the home had approved shutters or impact glass protection, they would have qualified for a preferred luxury home insurance policy at an annual cost of about $10-$12,000. That potential $20,000 annual savings alone would have paid for the cost of the installation within just a few years.
The last reason has to do with increasing the sellability of the home.  Buyers especially after the hurricane season of 2005, are much more in tune to hurricane impact windows and protection. It’s usually one of the first questions a buyer asks when previewing a home for the first time.  Many buyers over the years have even instructed me in doing a property search for them to rule out any homes that don’t have hurricane impact protection.
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Real Estate Testimonials – Tom Malcome

I wanted to take a moment to thank you for the wonderful job you did with the listing and sale of my home.  As a long-time resident of the Ocean Ridge area, I’m very familiar with a number of real estate agents, and there were many who wanted to represent me.

My decision to work with you was based on several points that I felt were important.  Your reputation for maintaining the highest ethical standards in business, your personal integrity and your exceptional work ethic were the key factors in my selecting you as my agent.

You represented me and presented my property in the best possible light. During negotiations, when the complexities of the sale and challenges presented by the parties would have overwhelmed most realtors, you went the extra mile, to understand the viewpoints and personalities involved. Your efforts kept everyone focused and everything on track throughout the entire contract process and through the closing.

You helped make a challenging situation relatively stress free, and your professional approach and attention to detail proved that I had made the best possible choice.

I’m grateful to you for everything you’ve done. I want you to know that I will gladly recommend you to others who want only the best, most professional realtor to help them with the sale of their upscale properties.

Real Estate testimonial from Tom Malcome

What’s Driving the Luxury Real Estate Market?


The south Florida luxury home market is booming. It began in my estimation about a year ago, in August, when I and a few other high end real estate brokers started seeing a real uptick in buying and selling activity in the upper segment of the real estate market.  Gulf Stream in particular may have been one of the hottest markets in South Florida. Surprisingly, that was during the late summer, traditionally a time when sales tended to slow.

That increased sales pace in luxury homes has continued through the New Year, and is being driven by three key economic factors that I have tracked over the years.

The first element is the trend of the stock market, which has recently been extraordinary, hitting new highs. This has provided wealthy investors with additional funds and the confidence to make major investments in new or second homes that satisfy their personal tastes for leisure activities like golf, tennis, beaches and boating. When consumer confidence is high buyers are willing to pull the trigger more often and in even some cases over-pay a bit to secure a property. This wouldn’t happen in previous years.

The next factor is the fact that almost 70% of investors and buyers of south Florida’s luxury real estate are from New York, particularly Manhattan and the Hamptons. According to the NY Corcoran Report, “Closed sales in the first quarter of 2014 increased 38 percent over the same period last year…sales volume rose by 27 percent…and [Hampton] properties that are unique and those that are priced well within their particular range are selling much more quickly than usual.”  Some luxury apartments in Manhattan are exceeding over $2,000 per square foot numbers not seen since the last boom.

That information bodes well for ongoing purchases of higher end properties in our areas as those sales create a “trickle down” effect on purchases in south Florida. You will see a parallel when the New York/Hampton real estate markets are doing well, Palm Beach will follow.

The final element that influences the market is the economics of supply and demand. For example, in the highly desirable areas of Gulf Stream, Manalapan and Ocean Ridge, currently there are about 50% of the numbers of homes listed today, compared to just a few years ago. These home range in prices from $750,000 to over $39-million for a newly constructed, furnished Intracoastal to ocean Manalapan residence situated on approximately 2-acres. When inventory is low it helps create a sense of urgency in the market with buyers.
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Real Estate Testimonials – Jean Wagner

As a broker, realtor and investor locally and out of state, I understand the importance of choosing the best professionals with whom to work, particularly as an absentee seller.

When I made the decision to sell my investment property in the Palm Beach area, I wanted to work with someone I could trust to handle the listing and sale, and someone who would demonstrate the highest levels of honesty, integrity and ethics, particularly in a difficult business environment.

Steven Presson was recommended to me by a friend in south Florida, and after several telephone conversations, I listed my property with him.  It turned out to be a wonderful experience working with Steven.

Not unexpectedly, the sale of a condo took almost 18-months, and during that time, Steven consistently provided me with excellent counsel on market conditions as well as input and competitive analyses to help me adjust my pricing to the changing conditions of the Florida market.

Steven’s work ethic, integrity and consistent honesty were clearly evident throughout the entire time we worked together.  There were several offers made that didn’t close, but ultimately, due to his hard work, we were able to conclude the transaction and close the sale to my total satisfaction.

As a realtor, I heartily endorse Steven, and give him the highest of references as a trustworthy businessman and realtor.  I’m happy, when the opportunity presents itself to do so, to refer him to other Florida investors whom I know because I’ve found him to be extremely reliable.

Please feel free to contact me if you have any further questions regarding this letter of recommendation.

Real Estate testimonial from Jean Wagner

Is Our Little Secret Getting Out?


The south Florida luxury home market is booming. It began in my estimation about a year ago, in August, when I and a few other high end real estate brokers started seeing a real uptick in buying and selling activity in the upper segment of the real estate market. Gulf Stream in particular may have been one of the hottest markets in South Florida. Surprisingly, that was during the late summer, traditionally a time when sales tended to slow.

That increased sales pace in luxury homes has continued through the New Year, and is being driven by three key economic factors that I have tracked over the years.

The first element is the trend of the stock market, which has recently been extraordinary, hitting new highs. This has provided wealthy investors with additional funds and the confidence to make major investments in new or second homes that satisfy their personal tastes for leisure activities like golf, tennis, beaches and boating. When consumer confidence is high buyers are willing to pull the trigger more often and in even some cases over-pay a bit to secure a property. This wouldn’t happen in previous years.

The next factor is the fact that almost 70% of investors and buyers of south Florida’s luxury real estate are from New York, particularly Manhattan and the Hamptons. According to the NY Corcoran Report, “Closed sales in the first quarter of 2014 increased 38 percent over the same period last year…sales volume rose by 27 percent…and [Hampton] properties that are unique and those that are priced well within their particular range are selling much more quickly than usual.” Some luxury apartments in Manhattan are exceeding over $2,000 per square foot numbers not seen since the last boom.
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Real Estate testimonial from Steve & Judy Miller

Real Estate Testimonials – Steve & Judy Miller

We want to personally thank Steven for his assistance in selling our home. After having listed our home with another broker for over a year, he was referred to us by a trusted friend, and from the beginning we saw the difference he made in the marketing of our home.

Steven’s approach took a great deal of stress off our shoulders, and he not only performed well, but exceeded our expectations.  His professionalism, energy, attention to detail and follow-up made us certain that we were in the best hands possible.

Steven proved that we made the right choice, when after only 120-days you sold our home at the agreed upon price.  We can’t thank him enough for everything he has done, and are delighted to recommend him to our friends and anyone who is looking for the best in real estate sales of upscale properties.

– Real Estate testimonial from Steve & Judy Miller