1031 exchange is also known as Starker exchange and it is a strategy used by investors in tax deferment. The housing prices are way over the bubble created several years ago and investors who have a lot of properties are opting to give them up for cash-flow properties all over the country. The large part of the population is not aware of this and that is why many people have not taken advantage of the situation.
Starker Exchange is defined in the 1031 section of IRS Code and it allows investors to sell a property and not pay capital gains tax as long as they invest in another one in the same category with the money they get from the sale. For this to be simple, you should take it to mean a swap. There are specific situations which have to be fulfilled for this to hold. One of these elements is a simultaneous exchange whereby the investments are done on the same day. This has dwindled in the modern times because many investors and buyers will want both properties.
If the seller cannot find a new property to invest in immediately, he or she is allowed by the law 180 days to find a property he or she thinks is worth the money spend in the purchase and this is referred to as delayed exchange. Many investors in the real estate world rely on delayed investment to get time to find the property of their choice in no rush. If the property you have currently cannot amount to the money you spend in buying it, you will benefit from selling. Besides this, if your property value has increased since the purchase, selling it for the new one means getting a better deal.
Reverse exchange is also included in the 103 exchange and the buyer will pay later after acquiring the property. You will face many challenges in getting a financier for such a deal though because your name cannot be included in title deeds of both properties thus lenders will not have a right to auction it in case of deferred. By creating an LLC for the property you want to invest in, you will have solved this issue and you will be able to change the deed f the new property to have your name after you have completed the sale. You may not always find a new property at the value of the old one. To avoid taxes, you can go for improvement exchange which is also allowed in 103 Exchange.