TOM PRESLER

Hawaii Real Estate Investor Guide

What is a Reverse 1031 Exchange?

What if you find a really good investment property before selling your current investment property?

What is a reverse 1031 exchange?

A regular 1031 Exchange allows you to reinvest 100% of the proceeds from the sale of your investment property to a new investment property, instead of paying a tax as high as 35% on profit from the sale.  So selling your investment property first and buying a new investment property comes after. 

With a reverse 1031 exchange, the order of the transactions gets reversed.  Buying a new investment property first and selling your original investment property comes after.  You will have 180 days from the day when the escrow for buying an investment property is closed.

Reverse 1031 Exchange

Pros and cons of a reverse 1031

PROS
You can purchase a replacement property before selling your original investment property.  You will not miss a chance to buy a new investment property when you find a really good one!

In case you decide not to sell your original investment property, it is just a normal purchase of an additional investment property and no taxable event.

CONS
You need to come up with money to purchase a new investment property as purchasing process comes first.