It is important to apply for loans at the right time when borrowing money for a 1031 Exchange. The informed real estate investor operates with three pieces of information in mind when determining the timing of your loan application in coordination with your 1031 Exchange:
- Get financing before you file an exchange.
- Sort out financing before you identify properties.
- Include financing in your business plan for future properties.
Get Financing Before You File an Exchange
When you incorporate a loan into your exchange strategy from the beginning, it makes the process straightforward for all parties involved. The escrow agent and qualified intermediary can verify the math of the sale by identifying the source of funds to compensate for the disparity between the selling price of the relinquished property and the purchase price of the replacement property.
Sort Out Financing Before You Identify Properties
By incorporating a loan into the identification stage of an exchange, the real estate investor is able to adjust his identification strategy to include more capital. With more capital, the investor can identify higher-earning properties than those the direct funds of the exchange afford them.
Include Financing in Your Business Plan for Future Properties
When identifying future properties for exchanges after the current exchange, investors can exponentially multiple the value of their portfolios by borrowing funds that convert to appreciating equity and rental revenue, using past business success as precedent for future borrowing. In this case, meticulous documentation is necessary in order to showcase the success of the exchange to future lenders (read more about loan approval documentation).
Conclusion
Keep these three things in mind when determining your loan timing – get financing before your exchange, before you identify properties, and before you solidify your business plan. Schedule a consultation with one of our loan experts to build a profitable loan strategy for your 1031 Exchange.
