A common trap for the unwary in a 1031 exchange is the post-exchange refinance. In this article, we are going to talk about how to handle post-1031 exchange refinances.
Things to Remember with Refinancing 1031 Exchange Property
In a real estate transaction, many bankers are exuberant and want to loan you as much money as you qualify to borrow. They will loan you as much money as they can. But remember, in a 1031 exchange you need to find a home for your equity. You’ve got radioactive proceeds from the sale of your relinquished property. What do you do with radioactive material? You don’t put it in your own pocket. You’ve got to put that radioactive cash into the replacement property.
If you bring in $300,000 as a down payment on the purchase of a new property, when the banker would ordinarily only require a down payment of $100,000 – the banker is going to be scratching their head wondering why you aren’t borrowing more money. They may be unaware of the requirements of a 1031 exchange.
The best course of action is to tailor your loan to the 1031 exchange in question so you don’t overborrow at the moment of acquisition. That way you will acquire a property of equal or greater value, equity, and debt. Then in a subsequent transaction, you can go back and refinance the replacement property after the dust has settled.
CPEC1031 is Here to Help!
Our qualified intermediaries are here to help you through your next 1031 exchange! CPEC1031 has over two decades of experience facilitating 1031 exchanges of all shapes and sizes. We can help you through the finer details of your next like-kind exchange of real estate.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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