September 19, 2022

How To Make An Exchange Work - Even When You Can't Qualify For A New Loan

Even When You Can’t Qualify For A New Loan

The 1031 Exchange Issue:

Real estate investors, James and Kathleen, are selling one of their investment properties for a net sales price of $1 million. Their cost basis is $200,000.

Upon the sale of the property, the mortgage of $200,000 will be paid off. The remainder of the proceeds ($800,000) will be sent to the 1031exchange accommodator. The rules of the 1031 exchange are pretty basic. They have 45 days to identify replacement property(s). They have a total of 180 days to both identify and close on the new property(s). The new property(s) must be equal or higher in value and, the property(s) must be held for investment purposes. Additionally, all proceeds captured by the 1031 exchange accommodator must be invested into the new property(s).

James and Kathleen soon discover there is a problem with their transaction. First, they want to purchase a home in Arizona for $750,000. However, in order to avoid paying any taxes, they need to buy $1 million in investment property(s).

Second, James and Kathleen are retired and do not qualify for a loan. How do they buy one or more properties for $1 million when they only have$800,000 in cash to spend.

They have three options:

1.       Buy the investment property in AZ and pay tax on the $250,000. They don’t like this idea.

2.       Pay tax on the $800,000 and don’t reinvest. They really don’t like this idea.

3.       Use a specific tax strategy to gain $200,000 in debt while at the same time being able to pay cash for the $750,000 investment property in Arizona. They loved this idea.

In the third option, the tax deferral consultant at helped James and Kathleen by leveraging their network to find a Delaware Statutory Trust or DST with a high loan to value ratio. They were able to find one with an existing loan equaling80% of the property value. This is called an 80% Loan to Value Ratio.

With this tax deferral strategy, each $20 James uses to purchase this very specific type of DST also buys him $80 in debt. So if James purchases$50,000 of this DST, he also purchases $200,000 of debt for a total acquisition of $250,000. This leaves $750,000 in cash to purchase the Arizona property outright.


In Summary,

James and Kathleen began this transaction with $800,000 in cash but needed to buy a property worth $1 million or more. Instead of paying taxes on $200,000 or the entire $800,000, by investing $50,000 into a DST  (Option #3), James owns a $750,000 investment property and a $250,000 DST.

Note To Realtors,

As a real estate professional, you've probably run across investors that have either been reluctant to sell due to taxes or have had issues like the one above.


We are Tax Deferral Consultants.


We help real estate professionals provide their clients with solutions to these issues problems so that you get the listing.


What is a Tax Deferral Consultant?


Tax Deferral Consultants use tax strategies to legally reduce or defer capital gains taxes owed on the sale of a primary residence, investment property, business, stocks, or almost any highly appreciated asset.


We have 13 different tax deferral strategies and are adding new ones all the time. We have videos on some of our tax deferral strategies here:


We are nationwide educators on the subject of tax deferral. Our mission is to provide financial services previously only used by the very wealthy to taxpayers across the country.


We would love the opportunity to interview to become a part of your team so that you can provide these strategies to your clients. Best of all, your clients remain your clients and we charge you nothing.


If you’re interested in learning more, I've added my calendar link below to make scheduling a time to speak simpler.


Thanks, Chris Shockowitz

PS: We are also 1031 Exchange accommodator reps and our service can save a failed exchange from paying taxes. For more information, check out



* Note: We are not CPAs or tax attorney’s. The scenario below is for educational purposes only. Do not use it for your personal financial situation without speaking with a tax professional.


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