Peak 1031 Exchange Inc.’s First Quarter Analysis of Southern California Real Estate Activity Reveals Spike in Small Investor and Single Family Rental Transactions

Share Article

In spite of higher capital gains taxes in 2013, investors are still pursuing real estate opportunities and utilizing the 1031 Exchange as a way of deferring tax liabilities.

Kevin M. Levine, EVP Peak 1031 Exchange, Inc.

Investors with much smaller portfolios found room to successfully participate in the market . . . . many smaller investor shops utilized the Delayed Exchange in 2013 to quickly capture opportunities in an extremely competitive environment.

“First quarter analysis of regional trends in the industry indicates a significant increase in small investors favoring the 1031 exchange process as a means to defer capital gains taxes,” states Kevin M. Levine, Executive Vice President of Peak 1031 Exchange Inc. (http://www.peakexchange.com). “As Bush-era tax cuts ended at the beginning of 2013, we had anticipated a slowdown in activity as a result of heavy investor transactions at the end of 2012 to beat the deadline. To the contrary, our first quarter transaction volume shows a significant spike in 1031 exchange activity, especially among investors with strong positions in single-family residential income property.”

Recent data affirms strong small investor activity in Peak 1031 Exchange Inc.’s core Southern California market, with all-cash buyers in February alone accounting for 31.4 percent of the Southland homes sold, and 30.6 percent in March of this year. “Despite strong acquisitions from REITs, institutional investors, and larger asset management firms in single-family properties for rental purposes,” Levine comments, “investors with much smaller portfolios found room to successfully participate in the market as well. We’ve observed that many of the smaller investor shops utilized the Delayed Exchange in 2013 to quickly capture opportunities in an extremely competitive environment.” The Delayed Exchange allows for the sale of an existing property, in which the funds are placed in a binding trust for up to 180 days while the seller identifies a similar property for acquisition and is allowed to defer capital gains taxes on the transaction. “While analysts projected a slowdown in activity,” Levine continues, “our client base was extremely active in identifying single-family rental opportunities and leveraging their existing properties to seize on opportunities that would not be available later in the year.”

Tight inventories in single family housing are causing a spike in values felt across the housing industry that could limit small investor participation, and Levine believes that those investors chose to act quickly on opportunities in light of the dwindling supply. “We work with a savvy, nimble investor clientele that understood that the 1031 Exchange process could assist in mitigating severe tax liabilities as a result of the sunset of Bush era tax cuts,” but concedes it could be a more difficult time ahead given the lack of single-family product available right now. However, Levine’s team has been working closely with investors and exploring the Reverse Exchange option. When the right investment opportunity does present itself to investors with access to available capital, states Levine, “the assistance of a qualified intermediary can help them acquire the property immediately with 180 days to sell a similar property already a part of their portfolio. We anticipate being able to benefit this sector of the market with tax deferment strategies, regardless of the limitations of inventory.”

Peak 1031 Exchange, Inc. is a leading national provider of tax-deferred 1031 exchange services, specializing in all like-kind transactions including Simultaneous, Delayed, Reverse, Improvement and Personal Property exchanges. It is part of the Peak Corporate Network (http://www.peakcorp.com), a brand representing a group of entities providing a comprehensive array of commercial and retail real estate services nationwide including mortgage lending, loan servicing, short sale services, foreclosure services, insurance, real estate brokerage and escrow services.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Wendell J. Grayson
Follow us on
Visit website