Kicking the decision down the road is the “plan,” or lack of plan, decided around numerous real estate board rooms and kitchen tables. It’s understandable to utilize caution, and it’s understandable for our clients to look to find opportunities.
Perhaps the biggest opportunity in our opinion is considering a 1031 exchange today and not waiting for the market to “get hot.” There are 4 reasons why now is a fantastic time to act on opportunity.
1) There is less completion.
Simply when everyone is making money in CRE everyone is “in” CRE. Today, interest rates have pushed low-down, high-leverage buyers to the sidelines. Higher returns in alternative investments have limited the number of properties that will work for syndicators and DST investment funds. All the while there are still really good properties coming to market. Simply, good properties with less competition make it easier to find A+ uplegs.
2) Pricing trends benefit the trader.
Most forecasters predict that fewer buyers and increasing rates will trend prices lower in the near term. If that’s the case, 1031 exchanges are a smart move to take advantage of the trend. Investors who sell today are selling at a higher price than if they waited a few months. The price of the downleg is set on the day the property goes to escrow, while prices are trending, our exchangers are out of the market. Three months later, or perhaps an additional 45 days before the upleg goes under contract, the price trend has moved in a positive direction for owning more property at a discount price.
3) Negotiations are more collaborative.
Fewer of everything makes everyone appreciative of what they have. Over the last few months, we’ve seen all sides in the transaction work together more to create favorable outcomes. This includes sellers, buyers, listing agents, buyer’s agents, management professionals, and lenders. This makes it easier to get a 1031 exchange done. Whether it’s terms, time, or information sharing, when parties on the other side recognize sincere efforts, everyone is working together.
4) The returns over time are just SO much better.
We know because we’ve tracked the exchanges we’ve completed every year for the last 20 years. We take a look at the cash flows, price increases, and all the factors that accumulate wealth for CRE investors. Those results show us that an exchange in the “worst” of times has been a winner over the last 20 years. Those results also have shown us that the most profitable exchanges we’ve been a part of occurred in 2009-2011 when most people were telling us, “We’re going to wait,” all they waited for was more competition and lower Cap Rates. We’ve got the numbers and are happy to share how we can help you.
We often think of the families we helped in those years when most people didn’t jump at the chance. It was so much fun to work with families that had the desire to learn what we knew, investigate our ideas thoroughly, and then take action. They killed it, they own great property today, and they have created great wealth for their families. It’s that time again, and our team loves it when we make a profitable contribution to our client’s success.
Author: Justin White, Managing Director
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info@centennialadvisers.com l 562.269.4844