What are the different types of 1031 exchanges? - YouTube

Hi, I'm Chris Peterson with Brazos 1031 Exchange Company.

Today we're gonna talk about the different types of exchanges that there are.

Most people think that there's only one kind of 1031 exchange but that's not actually the

case.

So, the first type of exchange is what we call a simultaneous exchange.

So, what happens in a simultaneous exchange is you are going to sell your relinquished

property and you're going to purchase your replacement property on the exact same day.

And typically this is done at the same title company, that you just move from one closing

to the other closing.

And so, you're gonna sell your property and you're gonna buy your replacement property

all in basically one transaction.

That's what makes it simultaneous.

The second type of exchange is a deferred exchange.

So, this is probably the most common type of exchange that we do.

So, in a deferred exchange, what that means is that there's a time gap between when you

sell the property and when you purchase the replacement.

So, we'll help you with selling your property, what we call the relinquished property, and

then within 180 days you're gonna close on the purchase of your replacement property.

Now, the reason that this is the most common type of exchange we use is because usually

people can't get those closing time periods to line up exactly on both the sale and their

purchase.

And so, usually there's a time gap, sometimes that time gap can just be a matter of days,

but sometimes it's a matter of months.

And so, in either case, we'll use a deferred exchange to accomplish that.

A third type of exchange is a reverse exchange.

So, just like it sounds, we're gonna do the process backwards.

So, what we're gonna do is instead of selling your relinquished property we're actually

going to buy the replacement property first.

And so we purchase the replacement property, we hold it and then within 180 days you sell

the relinquished property.

And essentially what we're doing is taking the money from the sale of that property to

reimburse you for the purchase of the replacement property.

The reason that a lot of times we use reverse exchanges is because an investor will find

a deal that's just too good to pass up and they have to strike while the iron is hot.

So, they'll go ahead with the purchase of the replacement property even before they've

listed the relinquish property to sell.

Kind of the fourth type of exchange that we often see is an improvement exchange.

And so, just like it sounds, what we're gonna do is not just buy the piece of property,

but we're actually gonna make changes to it as well.

So, think of buying a rental house and maybe you go in and you don't like the way the kitchen

looks.

It's got all laminate and you want it to be all granite, or maybe it's got an avocado

green bathtub and toilet and you wanna upgrade and update the bathroom to kind of a modern

standard, or maybe it's got some mechanical things that need to be changed in it.

Maybe it needs a new air conditioning unit or maybe it needs a new roof on it.

Well, what we can do is take the money from the sale of the relinquished property and

use it not just to purchase the replacement property but also to update, repair, or improve

the replacement property.

We've had clients that have done this to build a hotel or to build structures in a subdivision

that they were developing.

So, you really can use it for a lot of improvements, whether those are relatively small improvements

like a new bathroom, or whether that's a larger construction project like constructing a hotel

or constructing a rental house from the ground up.

So, those are the four basic types of exchanges.

Again, I'm Chris Peterson with Brazos 1031 Exchange Company.

If we can help you in some way with your exchange, no matter what type or variety that you are

planning to use, just give us a call.

If you have basic questions, you can call us, you can check out our videos on YouTube,

or you can check out our website at brazos1031exchange.com.

Thanks so much.