The Society and 1031 Exchange

The 1031 Exchange and the “delayed exchange” are tools that have been available since the founding of the Society of Exchange Counselors. The delayed exchange was not so rigorously defined with respect to the timing of replacement property selection and “must-close time” as it is today. However, Charles Considine (Richard Reno’s CPA from San Diego) used to come to our meetings and give classes on the various case law to accomplish delayed exchanges using to-be-built buildings, the “ultimate bailout” formula, and other creative techniques.

However, more than 60% of transactions completed in the 60’s and 70’s were motivated for REASONS OTHER THAN DELAYING TAX CONSEQUENCES. While, “tax free exchanging” was certainly a benefit to client counseling, it was the motivation to change an owner’s circumstances that prompted the transactions found through SEC brainstorming for alternative solutions. Part of the reason for the proliferation of exchange groups and related education was that there was not as strong a cash market for other than prime properties as there has been in recent years. The Exchangors were completing transactions and others were not, so the industry gravitated toward the SEC success pattern.

Today, things that have changed: A more efficient capital market for real estate and loans now exists with better technology to find product and money. A clear definition of the 1031 rules by our friends at the IRS both helps and hinders the process. More efficient Real Estate firms created through franchising and training make up larger segments of our business.

Yet, certain things haven’t changed: The need for training brokers and clients to be willing to operate OUTSIDE THE CASH SALE MARKET for all of the additional alternative benefits is more important today than ever. The technique of flexing every client, broker, and property to be able to do “transaction art” in 1,000 ways other than to expose to the market for a buyer, still exists. The cultural resistance to alternatives to “cash value thinking” still needs to be overcome. The knowledge and talent related to alternative transaction approaches is still sequestered in the minds of very few practitioners.

The SEC’s unique contribution to the real estate industry is our desire to see an expansion of our members’ and guests’ transaction capacity. High integrity and reliability are the keys to success. The Society provides a great way to “live the real estate life.” Integrity, Service, Experience and Counsel are the SEC way… It’s been that way for 40 years and will be for another 50.

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