Getting a 1031 exchange deal done right begins with asking your client the right questions before the relinquished property is sold. Bob Nelson, Eugene real estate investment broker with Pacwest Real Estate Investments, in part 3 of his 1031 exchange series shares the questions a Broker should be asking in client counseling sessions.
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Bob Nelson’s Essential Questions to Ask During Client Counseling Sessions:
Who are the decision makers? Who are the influencers?
Confirm you are talking to the person who will be making the final decisions.
What’s the magnitude of your client’s tax problem?
In some instances, it’s not very large it might not be worth going through the tax deferred exchange process.
Does your client have available tax losses that they can use?
For example, losses from the stock market could be used against the long-term capital gain concern when the relinquished property is sold.
What are your client’s financial concerns?
Review the loan on their property. A pre-payment penalty or a yield maintenance clause can be deal killer.
Does your client have personal debt concerns like credit card debt?
Take advantage of the opportunity in a tax deferred exchange to pull back some equity. That equity becomes cash when the relinquished property is sold, improving their cash flow. This is a great opportunity to help your client’s long-term position in the property and their overall financial stability.
- Do they have short term balloons coming due?
Paying off a short-term balloon payment may help solve financial problems.
- Do they have high interest loans that could be taken care of here?
Turning equity into cash to pay off high interest rate loans with high monthly payments for the amount that’s actually owed could result in huge savings for your client.
- Are they concerned with estate planning?
This is a great time to help position finances for their estate plan.
Make sure that you understand your client’s motivation.
Client counseling is your opportunity to understand what motivates your client to do the transaction, what dangers that they perceive, what their strengths are and what opportunities that they are looking for.
Bob Nelson, Eugene Commercial Real Estate Investment Broker:
The sooner you counsel, the better you counsel, the more you understand, the better the position your client will be in. Successful client counseling leads to successful transactions and great client relationships.