1031 Exchanges

Trends in Real Estate Pre and Post Pandemic

The post-pandemic world has shifted the real estate industry. What does this look like for real estate investors and 1031 exchanges?


The real estate market has been one of the hottest the United States has ever experienced in the last few years. Despite the Federal Reserve increasing interest rates in an attempt to combat rising inflation, the real estate market has continued to flourish as we approach the beginning of 2023, with median home prices in the United States still increasing every month.

Numerous factors clashed, causing the real estate market to become competitive amongst buyers in 2020-2022. First, the COVID-19 pandemic dramatically changed how people and businesses operate. It gave more freedom and flexibility to employees to work from home and avoid coming into the office altogether for an undetermined amount of time.

Second, millions of millennials entered the home-buying age, an already congested buyer market. Third, there has been a supply deficit of housing throughout the country. This has led to the prevalence of bidding wars over limited inventory, with homes often going over their asking price. Lastly, historically low-interest rates increased purchasing power for all borrowers.

Pre-Pandemic

Home prices appreciated steadily throughout the 2010s following the financial crisis of 2008. There has been a price increase in median sale price by range as well as the largest cities and the national range.

According to PropertyShark, “Nationally, homes that sold at a median resale price of $275,000 in 2019 [are] rising 35% from their 2009 median sale price of $204,000.00.”

Further, in urban areas, these increases were more significant than 35%. Throughout all price ranges, median home prices exceeded the national average. For properties within the $100,000-$250,000.00 range, the most significant appreciation for properties located in large cities is at a staggering 49% appreciation for the decade (PropertyShark).

Mortgage rates for the first half of the 2010s revolved around 3-4%. Following the 2016 Presidential election, rates slowly increased and at their peak in 2019, went between 3.95% on the low end and 5.34% on the high end (Rocket Mortgage). Everything would dramatically change as the COVID-19 pandemic would seriously alter the real estate industry.

Pandemic

The taxpayer will have 180 days from closing on the property they are selling to close on the property(ies) they will be purchasing. The property(ies) should be those identified during the 45 day identification period.

When you go under contract or wish to make an identification, it is best to notify Midland 1031 immediately so we can send you the proper documentation.

Seven Facts to Remember to Meet Your Deadlines

    1. For a standard exchange, you can go under contract for a property you plan on purchasing before you close on the property you are selling as long as the property you are selling closes first.

    2. The property you are selling must be equal to or lesser than the cost of the property you are buying. This can also be met by selling one property and buying multiple.

    3. If you approach the 45th day and decide that you want to discontinue the 1031 exchange, you can revoke your identifications, and we can return the exchange proceeds to you on Day 46.

    4. If you have already made identifications and it is past your 45 day identification period, Midland 1031 has to hold the exchange proceeds until the exchange period is over. As the Qualified Intermediary, we cannot release the funds back early even if the exchanger has decided that they will not be purchasing one of the properties that they identified in their identification period.

    5. Both the 45 day and 180 day deadlines begin when you close on the property you are selling.

    6. No extensions or changes are allowed to the 45 day identification form after the 45th day.

    7. There are no extensions to the 180 day deadline. If the property you wish to buy falls outside of the 180 day deadline, we will not be able to fund the purchase and we will return the exchange proceeds to you on day 181.

Getting Started

A 1031 Exchange is only used for investment, rental, and income-producing properties. If you are under contract or considering selling your investment, business, or rental property, give Midland 1031 a call at (239)-333-1031 to see if you qualify for a 1031 Exchange today.

Important Note: You must set up your 1031 Exchange prior to closing on the sale of your investment, rental, or income-producing property. It is important to note that the following are deadlines that the taxpayer, or exchanger, will need to know for their 1031 Exchange. Please visit our website or call (239)-333-1031 to see if your investment, business, or rental property qualifies today.

 

MIDLAND TRUST COMPANY, OR ITS AFFILIATES OR SUBSIDIARIES (COLLECTIVELY REFERRED TO AS “MIDLAND”), IS NOT A FIDUCIARY: Midland’s role as the Custodian and/or Administrator of self-directed retirement accounts is non-discretionary and/or administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account and is responsible for conducting his/her own due diligence. Midland has no responsibility or involvement in selecting or evaluating any investment and does not conduct any due diligence on any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

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