Exchanging Property
Probably most people have heard of exchanging one property for another. Well sounds good, but rarely happens in the real world as most people will not want what you have and then another property becomes involved and can wind up with 3 or 4 legs before you get what you want. And, No exchanging is not that clause in the sale contract that says you will participate in a 1031 Tax Deferred Exchange, it is much more than that. That clause is a sale and a purchase.
In Exchanging there are two main components, Debt and Equity. The thing about exchanging that most people have a hard time understanding is that the Equity may not be there. In other words, Equity is that phantom potential amount of money, that is so elusive because it can be high one day and way down the next day. Most sellers think they know exactly what their equity is because that is what they "Want". Some sellers say, "Well its an exchange so let's raise the price to compsenate for the other high price". "Won't work and it is only worth so much and a good appraisal or a cash flow analysis will show the sale or exchange price.
Most people, including me would like to just sell and take the equity and walk away. Sometimes it is hard to sell and easier to trade. Exchanging is about solving another persons property problem and also solving yours. You probably do have a property problem, in that the property has not traditionally sold. If you solve your problem of "No Sale" then you will most likely solve another persons property problem. It may be as simple as helping someone move to another town and take another property that gets them out of the one they are in. In other words, they took their equity with them only not in the form of cash.
Now, "Debt", believe it or not! You also own the debt! Now this is where it becomes hard to get your equity because it's tied to the debt! If you get your equity, the lender also, wants his equity. We used to be able to let someone assume our debt, but rarely will that happen in todays lending. That great instrument, called "Assumption", allowed us to walk away with our equity and let some one else pay the debt, "No More". Today, the instrument that has replaced assumptions is called "Due on Sale Clause" and that clause is in nearly every deed of trust. If you sell or exchange you will trigger the "Due on Sale Clause" and must pay off the lender. Bummer!
The amount of debt will reduce your equity. The hard part of an exchange is handling the debt by either moving it, paying it off or some other creative thing, but, it has to be delt with and you do "Own It". Debt and the obligation you have to get the lender his money, makes the deal more difficult and means you will have to involve a lender any time there is debt.
The only thing you have to exchange in your property is equity. If you own the property free and clear of debt then the exchange is just a matter of finding someone that wants your property (Equity). Then the exchange becomes a matter of benefits exchanged and received. There are ways to balance equities and increase your holdings and gain profit by moving up in value.
Call me if you need help. I am qualified as an investment counselor CCIM and Equity specialist, EMS.