Interview: Craig Procter of Starker 1031 Exchange Services
We interviewed Craig Proctor of Starker 1031 Exchange Services on a couple of installments of the Mobile Home Park Investors podcast. Delving into topics such as the 1031 exchanges and how they can be used as a way to legally save money on your real estate investments, this episode is filled with essential information for anyone interested in real estate investing. With that in mind, the following is a closer look at the expertise of Craig Proctor and how you can leverage it to make more money with your own real estate investments.
Who Is Craig Proctor?
For those who are yet unfamiliar, Craig Proctor is a finance degree holder with several decades of varied experience. His expertise includes tech sales, real estate, 1031 exchanges, and more. He has been the vice president of sales at Starker 1031 Exchange Services for the last 15 years and has been with the company for over 20 years.
What Are 1031 Exchanges?
A concept that gets its name from the section it was derived from: Section 1031 of the U.S. Internal Revenue Code, a 1031 Exchange is a procedure that makes it possible for property owners to buy and sell like-kind property, all while deferring capital gains. Moreover, these proceeds from the sale can then be reinvested within certain time limits into properties of equal or greater value.
In addition to the other requirements, 1031 Exchanges include the following stipulations:
The taxpayer has 45 days to identify the replacement property. This must be put in writing and sent to the intermediary during the specified time frame.
On the other hand, the taxpayer has 180 days to acquire one or more of the properties they have identified.
Either way, real estate owners should be advised that there is no extension to the 45-day window. Therefore, they must be sure to act quickly and send all the necessary information as soon as they can.
Tips for Getting the Most from a 1031 Exchange
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One of the safest ways to properly execute a 1031 Exchange is by doing everything as quickly as possible. Although it may be tempting to take your time, the 45-day window is non-negotiable. So, if you take your time and encounter any unforeseen hiccups, it is possible to totally miss the deadline. For instance, if something goes wrong with the replacement properties you’ve selected, you will have time to requalify before the 45-day period is over.
If you sell your park, are interested in doing a 1031 Exchange, but are worried you won’t be able to complete the process in time, Proctor asserts that investors should always list multiple properties. This is because there is always a possibility for unforeseen issues to arise which could prevent you from purchasing your chosen property. By taking the time to find multiple backup properties, you can ensure that you will be able to purchase a qualified property during the 45-day period.
Maximizing Your Deferment
Proctor asserts that taxpayers must do the following to fully defer the gains:
They must buy properties that are equal to or greater than the net sales price, or the amount of the sale minus closing fees, of the property they’ve sold.
They must take all the proceeds and reinvest them into the replacement property.
Moreover, it is essential to note that doing a 1031 Exchange is a way to defer taxes, not get rid of them. However, it is entirely possible to defer those taxes indefinitely, and despite the fact that we focus primarily on mobile home park investments, 1031s apply to all types of properties.
What is the Purpose of a 1031 Exchange?
Above all, according to Craig, the purpose of a 1031 Exchange is to ensure that the client’s money is safe and liquid. Therefore, if you get involved in an investment that does not allow you to quickly liquidate the funds, you have defeated the purpose of this type of investment.
Insuring Your Home Under a 1031 Exchange
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Given that the FDIC only insures accounts of up to a quarter of a million, those who have accounts that are significantly more than that may need to take extra steps to ensure all the money is insured. For instance, some investors may request the funds be held in multiple accounts, to make sure that they remain under the limit and are thus FDIC insured. However, most people simply rely on the insurance of the intermediary, the money is held in an account, and no other issues arise.
1031s and Exchanging Real Estate for Real Estate Funds
When it comes to 1031 funds, they need to be acquired in the same entity that sold the property. So, for instance, if you are doing an exchange using a real estate fund, the new investment will also be in the form of a real estate trust. However, some entities are considered ‘disregarded entities’ by the IRS, which means they are essentially one in the same. So, for instance, if a husband and wife created a trust, their individual names would be considered ‘disregarded entities,’ meaning that one could easily be exchanged or replaced by the other when handling dealings in relation to said trust.
The Importance of CPAs
Proctor also asserts that CPAs are very important when dealing with the 1031 Exchange process. This is especially the case when dealing with complicated 1031 Exchanges. This is because it is entirely possible for you to make a misstep, which could result in your 1031 being devalued. So, rather than attempting to go it alone, onboarding a CPA is a great way to overcome potential issues that may arise as a result of inquiries made by the IRS.
What is a Construction Exchange?
Craig and the company he works for, Starker 1031 Exchange Services, also offer something known as a ‘construction exchange.’ For those who are yet unfamiliar, a ‘Construction Exchange’ is a 1031 Exchange in which the intermediary builds the replacement property. However, the investor cannot own the underlying property before doing the exchange. The property must be totally new, in order to qualify for a construction exchange. This often works for exchanges in which the property may be less than the original investment. Therefore, the intermediary is able to create a construction plan that allows them to use the rest of the funds.
About Mobile Home Park Exchanges
When it comes to property exchanges, you are dealing with two types of property: real estate property and personal property. So, for instance, if an investor purchased a mobile home park but wanted to trade it for another mobile home park, which includes homes, a couple of years later, they would essentially need two 1031 agreements: one for the property and one for the mobile homes themselves.
Do Your Research
No matter how successful of an investor you may be, if you are a mobile home park investor who is interested in getting involved with 1031s, you should always perform your due diligence. If you are looking for a way to properly research and vet companies handling 1031 Exchanges, you should:
Get a Referral: As with many other areas of our private and professional lives, one of the top ways to do your research is by consulting with trusted professionals. If you know a mobile home park investor who has successfully completed the 1031 process, you may want to ask them which company they used.
Contact Other Professionals: Moreover, if you are acquainted with professionals such as CES’s, attorneys, real estate agents, etc., reaching out to them can also be a great way to find reputable companies to handle your 1031. Since there are less than 125 Certified Exchange Specialists in this country, asking any CES can be an excellent way to find the perfect company for your needs.
Key Takeaways:
1031s are great for investors that may be interested in trading or replacing their existing properties with new ones while also deferring tax liability.
In order to complete a 1031 Exchange, the new property must be of greater or equal value to the previous one.
One loophole for investing in lesser valued properties in doing a construction exchange.
If you are interested in doing a 1031 Exchange, you should take the time to perform your due diligence. Failing to do so could be catastrophic to your investment portfolio.
In order to avoid issues with the IRS, onboarding a CPA is strongly advised.
One of the safest ways to ensure your 1031 Exchange process runs smoothly is by completing the process as soon as possible.
Ready to Learn More About 1031s?
If you’re ready to learn more about 1031s, there’s no time like the present. Taking the time to research and understand 1031s is a way to further ensure your own success.
Investing in Mobile Home Parks is a great investment and an amazing way to expand affordable housing. Learn more about our Mobile Home Park Investment Fund: https://www.parkavenuepartners.com/.
Additional Resources:
https://www.cwscapital.com/what-is-a-1031-exchange/
