Closing a Loan Quickly to Meet 1031 Exchange Requirements

We often speak of the speed at which we can approve hard money loans. As a private lender, we have the kind of discretion we need to move more quickly than traditional lenders. One of our more recent deals illustrates the point perfectly.

The deal involved a client who needed funding to close a 1031 Exchange transaction. Time was of the essence. We were contacted by the client’s mortgage company and told that the deal had to be closed the next day. If not, the client would lose out on the benefits of a 1031 Exchange. We are proud to say that Actium Partners made it happen.

1031 Exchange Transactions

A 1031 Exchange transaction is an asset transaction based on Section 1031 of the Internal Revenue Code (IRC). It is essentially a like-kind exchange, or swap if you will, of two similar assets in order to reap the tax advantages. In real estate deals, Section 1031 allows the deferral of capital gains taxes.

Practically speaking, you could have two investors with properties they want to exchange. They could sell their properties to one another and be done with it. However, both investors would then have to report capital gains. They can avoid capital gains by simply exchanging the properties under Section 1031 rules. Such exchanges are still considered taxable sales, but they allow deferral of capital gains until a future sale of the exchanged property.

Like almost everything related to the IRS, 1031 Exchange transactions are governed by clear restrictions. Among them are two rules having to do with timing. Without getting into detail, our client was up against a time deadline no bank could meet.

We Moved Quickly

As previously stated, the mortgage company in this particular case called us to let us know of the problem. The client’s loan needed to be closed the next day in order to beat the IRS deadline. Moving quickly was out of the question for a bank. It wasn’t for us.

Despite the challenges of working under coronavirus restrictions, we put one of our people on a plane and flew him out to the location of the collateral that very same day. Early the next morning, he inspected the property and determined it sufficient for the loan at hand. He then flew home and completed the necessary work to provide immediate funding.

The fact that we were able to respond the very same day probably saved this 1031 Exchange transaction. Our ability to move quickly allowed us to fund the loan in less than 24 hours. Our client was able to meet the IRS requirements and close the deal.

Working Hard to Make It Happen

This particular case illustrates just how hard Actium Partners works to make things happen on behalf of our clients. There aren’t many other companies in many other industries that would put someone on a plane and fly him to the client’s location within hours of receiving a call for help. We are able to do that because our business model makes us more nimble.

We also have the discretion to provide funding at a moment’s notice. Such discretion was critically important in this case. We were able to make a loan based primarily on the value of the inspected collateral without forcing the client to jump through hoops that could take days or weeks.

At Actium Partners, we take great pride in being able to fund projects like 1031 Exchange transactions. We consider projects like this a challenge. More importantly, we rise to such challenges in ways that traditional lenders cannot.