The 1031 Brief Podcast Ep. 4: Can You Buy Before You Sell?

Most investors assume they have to sell first and buy later in their 1031 exchange, but that’s not always the case. Ashley Stefan and Anthony Alosi, Director of the National Reverse Exchange Team, explore a structure that can help preserve opportunities when timing doesn’t cooperate. They cover how the reverse exchange process works, common misconceptions, practical challenges, and why early planning is essential. If you’ve ever worried about losing a 1031 replacement property option before your sale even closes, this episode is for you.

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TRANSCRIPT

Ashley Stefan: Welcome to The 1031 Brief, a podcast from First American Exchange Company. I'm Ashley Stefan.

Before we get started, a quick reminder that this podcast is for educational purposes only. It's not legal, tax, financial or investment advice, so if investment questions are raised for you, be sure to reach out to your tax advisor or legal counsel. Today, I'm joined by Anthony Alosi, Western Regional Manager at First American Exchange Company and manager of the reverse exchange department.

He's worked in the exchange world and on reverse exchange structures for three decades with First American. No, listeners, I'm not exaggerating. As you can imagine, we have with us someone with stories for days and a wealth of wisdom surrounding how the 1031 world moves with the market around it. So, with that, Anthony, I'm glad to have you as one of our first guests on the podcast. Thanks for being here.

Anthony Alosi: Hey, thanks, Ashley. Great to be here. Thank you.

Ashley Stefan: Well, to kick us off, I just wanted to start with a boiled-down explanation of what a reverse exchange is, because I know we're going to get a little bit into the weeds today. So in a standard forward exchange, the investor, as we know, sells the property that they plan to sell first, and then they use those exchange proceeds to acquire their new replacement property. But a reverse exchange is going to come up when the timing doesn't line up that way, which is, you know if you've been in real estate for more than a minute, happens all the time. So the investor might actually need to acquire their property before their property is closed or is even in contract. And the reverse exchange brings in the set of tools that's going to allow the investor to possibly accomplish an exchange in that situation.

So I want you to talk about this a little bit more, but before we start, I also want to make sure that we hone in on a word that we use a lot, which is parking. So I was wondering if you could talk a little bit about what parking means. And also when someone asks you what is a reverse exchange, how do you explain it in a way that people can actually visualize? I'd just love for you to get into the mechanics of what a reverse exchange is, what parking means and how that holding entity functions.

Anthony Alosi: Yeah, totally. I call these parking transactions. I think the word reverse sometimes leaves a connotation that something is done in reverse order. And really it's not. I try to impress upon people that the parking transaction is really the first step. And parking a property is First American essentially takes title to this property.

When someone looks at a reverse exchange, I think there's kind of two schools of thought for them. One of them is: they always do a reverse, meaning they have to protect their exchange and they want to buy the replacement property up front. And this is the only strategy they implement by utilizing a reverse exchange. Because, to your point a moment ago, it takes a lot of the guesswork out of setting up their 1031. They have their property already ready to go and to acquire. You know, the big challenge in a delayed exchange, of course, is what am I going to find? I've got 45 days to identify, the window's very small.

If I can set up this parking transaction, I really eliminate a big component of why exchanges fail, because I didn't find the property in the right timeframe. With a reverse or a parking, the property's already sitting with the qualified intermediary under this structure. So we've got a lot of clients that only will do reverse exchanges.

The other kind of school of thought is: I stumbled upon this property. I've got to have it, right? It's a magical property. I've got to make it part of my portfolio. And I've got to close in 30 days or less. And the seller won't allow me any extension. And I don't have anything currently listed. So how do I accomplish that?

And this is the great part of what a reverse does, or a parking transaction does. It allows the client to essentially have us take this property and hold it for them. We become what I call an interim buyer. And First American sets up a limited liability company wholly owned by us, and it takes title to this property. So the seller essentially is out of the loop. They get their money, they ride off into the sunset, and now we're holding this property, waiting for our client to now dispose of their relinquished transaction.

So a parking structure is fantastic. And we've got guidance on it. We've had it now for 26 years, essentially. We've got a revenue procedure that was issued in 2000. So we know exactly how these transactions are to be structured.

Ashley Stefan: That’s awesome. And so I want to kind of touch on that. You bring up this revenue procedure. This is what we often refer to, right, as the safe harbor that we act under when we're parking properties with our holding entities. So I was wondering, could you get into that a little bit more? You know, what makes an exchange a safe harbor exchange and does that automatically mean the exchange passes muster, or what does that mean for the investor?

Anthony Alosi: Yeah, that's a great question. So in 2000, we finally got some regulations on how IRS wanted to see these transactions structured. You had mentioned my career here at First American spanning 30 years. And when I started with the exchange company back in the late ‘90s, we didn't have a Rev Proc. We had transactions that were going on for years and years and years where we were parking property with no end in sight. So once the revenue procedure got issued in 2000, it really kind of changed the makeup of how these transactions were put together.

Good, bad or indifferent they set a timeframe to them. And the timeframe mirrored a delayed exchange, meaning you have the same amount of time to complete your reverse that you do your delayed exchange. And yes, I think the way I look at the Rev Proc is as long as you're within safe harbor, as long as you're within the confines of the revenue procedure and meet all the requirements, you've satisfied a reverse exchange structure.

Ashley Stefan: So the revenue procedure requires 180 days for the parking period. Is there anything around the timing or anything else with reverse exchanges that you hear misconceptions about from investors who are interested?

Anthony Alosi: A lot of misconceptions about the reverse exchange process, unfortunately. One of them is that they need to set this up prior to closing on the property. I think that's the biggest one. You know, I get calls literally weekly from people that say, I want to set up a reverse and I'm already holding the property. I already closed on it. I understand that I have 180 days to sell something to complete my exchange.

And here's kind of when I start my conversation with a client, I always say, here's your challenge. Your challenge is you can't own both properties at the same time. You can't own your replacement property and your relinquished property together. In their mind, they have to do a delayed exchange always. Sell first and buy thereafter. So this parking transaction, again, as I said earlier, puts us as this interim buyer. And we take title to the property and hold on to it until they can sell their relinquished property.

But the big misconception, Ashley, is that they can hold it their own and then just take their time to sell their property within the next 180 days. And that doesn't work.

Another challenge that people have is the timing, right? I mean, let's face it, in 2026, 180 days is a blink of an eye, right? It's roughly six months, but I always tell people it's specifically 180 days. You've got to make sure that you can complete this transaction within that timeframe.

And if you can't, then you have an unsuccessful or a failed reverse exchange. And that could be challenging because, A, you've spent money to set this up. And B, when you do sell your relinquished property, now you have to find a whole new investment to exchange into to defer your gain. The property that we parked as part of the reverse is no longer an option. You've got to make sure that this strategy works for you and that you can still get your property sold within the 180-day timeframe.

Ashley Stefan: I was wondering we could unpack that a little bit, you know, the property that you already own, you can't acquire that as replacement property. And you know, we've seen some people try and maneuver around that. And I’m correct in thinking, and make sure you clarify for me: that's not possible, right? You can't just transfer property you own to somebody else and then acquire it right away as replacement property in an exchange or a reverse exchange, right?

Anthony Alosi: Right. Yeah, I mean, I get people asking me all the time, let's get creative here, Anthony. And I'm like, I'm the least creative person on the planet.

But yes, to that point specifically, Ashley, those properties cannot be transferred amongst friends and family members for short periods of time. Those are things that are outside of their safe harbor. So back to the point about why it's important that people do follow the Rev Proc and why it is important to stay within the safe harbor: because you don't want your ship being boarded. If you're in the harbor and you've met the requirements, you've got a good transaction.

Ashley Stefan: So what I'm hearing is plan ahead, pull in your team as early as possible, because a lot of these problems are born out of last-minute, last-ditch efforts to do something that's probably not possible anymore.

Anthony Alosi: Well, and that's kind of the nature of the real estate world, you know, last-minute stuff. You’re out, like I said earlier, you know you've come across this magical property, you've got to have it. You're like, my gosh, I've got a portfolio of ten properties, none of them are on the market, I've got to get one ready to list, they all have tenants. You know, this reverse exchange still can be a viable option, but again, to your point, yes, I've got to start putting ducks in a row very quickly here because this transaction cannot come together overnight.

We can't get a reverse exchange together within 12 hours. Where I probably could do a delayed exchange in a day, a reverse exchange is going to take some time to get pieces moved around the board, get the closing agent instructions on closing. So there are some more challenges for setting up a parking transaction than would be a normal delayed exchange. So pre-planning: the more time we have, yes, the better off we're going to be. Absolutely.

Ashley Stefan: So, Anthony, we've been talking a lot about the importance of people planning ahead, thinking these problems through. Obviously, people aren't looking for a more complicated exchange than is necessary. And these reverse exchanges are often born out of the fact that the exchanger needs timing flexibility, or maybe it's a competitive market and the seller won't wait, or there's some sort of due diligence holdup with their own sale. Those are some examples I can think of. What are the issues that you typically see that are going to cause a reverse to be necessary for an investor?

Anthony Alosi: Yeah, I mean, I think that the two big ones are that they have to do a reverse, right? Because their tax liability, Ashley, is so significant that for them to fail on a delayed exchange would be really detrimental to their financial future, if you will. And by that I mean, you know, you've got a big customer and they're selling a shopping center that's got $250 million of gain, and they can't afford to sit in a 45-day identification period and hope they find the right replacement property. They would much rather tie up a property in a reverse, knowing that they can get their center sold within 180 days. That's one end of the spectrum.

But it's also, you know, mom and pop -- my favorite exchanger, Joe and Mary Smith, who own a property that has $500,000 of gain. And for them to fail on that transaction would be detrimental to their financial health as well too. Let's go back a step or take it from the very top for 1031. What's the goal? In my mind, the goal is to defer capital gains tax, right? And again, investors big and small all have the same challenge. Capital gains tax can be significant. So that's why 1031s have been very viable and around and stood the test of time for over a hundred years now.

But the goal for most investors is really to defer the gain. And this reverse exchange structure, this strategy, really helps them solidify their success rate. Because of the transactions that we see fail. And, you know, albeit a small amount of transactions fail on a regular delayed exchange. They fail usually because they can't find the right replacement property. People get into this reverse structure because they’ve got it. They've identified the property. It's now tied up in a reverse. All they have to do is get their existing property sold.

And that is usually the easier of the two events. Selling or disposing of your relinquished property is generally easier than finding the right replacement property, because you know you've got a really short window in order to do that. So those are really the two challenges I see that people have.

And now you start breaking down the challenges of the structure of the reverse. And I don't want go get ahead of myself, but I dont know if that helped answer your question.

Ashley Stefan: Yeah, it definitely did. So it sounds like it’s the element of control is really helpful for people. And I'm curious, do you see investors strategically then going -- and you mentioned earlier some of your customers almost exclusively do reverse exchanges. Are you seeing this as a growing trend?

Anthony Alosi: Yeah, absolutely. Very much so. Very much so. Because again, once they kind of understand the structure and how everything gets put together, it becomes very easy. It becomes almost, I don’t want to say a no-brainer, but it becomes a transaction, or transition, for them that's easier, it’s more palatable because they know they can get their property sold. They've already got their replacement property parked with us and we're holding onto it for them. And we're big, we're safe, we're secure. They don't have to worry about something happening to that property. So again, I think they find a lot of comfort in this structure. Most definitely. It is a growing trend. And even though, like I said, we've had guidance for 26 years, we see more and more reverse exchanges being done now than we have in years past. Most definitely.

Ashley Stefan: All the more reason for investors to be learning about them and doing this deep-dive with us. And actually, to that end, something we haven't really talked about yet, we touched on it, is the fact that you can actually go one of two ways when you're doing a reverse exchange. Without getting into the truly nitty-gritty of the mechanics, the approach is either A, parking the replacement property that you're buying, or B, the accommodator temporarily takes title to the property that the investor is selling.

So I'm curious, what are the reasons that an investor might choose one of these structures versus the other without us getting too complicated?

Anthony Alosi: Sure. I think a lot of times when we talk to the client about their needs and how we're going to set this transaction up, it almost defaults as to whether we're going to do an exchange last, which is referred to as a replacement park, or an exchange first, which is the relinquished park.

I like to park the replacement property if at all possible. That's much easier in my mind to do. We've got really two speed bumps on an exchange last transaction that we need to overcome. One of them being environmental and one of them being lending. If we've got both of those satisfied, then a replacement park is much easier to satisfy, much easier to structure for the exchanger all the way around. We've got variables and we've got absolutes that we know won't change.

In an exchange first transaction, we've got some unknowns. We don't know what the property will sell for. So we've got to park this property that we think will sell for X amount of dollars, but we don't know what it's going to sell for. And I call this a little bit more of a philosophical transaction, because we actually have to create a closing if we do a relinquished park. We are creating something that is not yet available, meaning the investor has to sell their property to us and they think they're going to sell it for a million dollars, $500,000. But what if it sells for less? What if it sells for more? That can be challenging for the client.

And what if they are transferring property to us that has environmental concerns? That has a loan attached to it? Those bring up other potential pitfalls as well too. So again, we're going to walk through this scenario and come to the fork in the road for the client to determine: are we going down the exchange first? Are we going down the exchange last? And a lot of the variables of their specific transaction will dictate which strategy we implement.

Ashley Stefan: Got it. And just to back up a little bit, the exchange first scenario: it's called that because you're literally exchanging before you sell your property. Is that right?

Anthony Alosi: Yep, that's right. Essentially you're doing a simultaneous exchange. So you're doing two steps within a day of each other, maybe even on the same day. Step one is the investor transfers the relinquished property to, and we're going to introduce this word that I'm sure we're going to talk about more as we go on here -- the EAT. The EAT is the Exchange Accommodation Titleholder. That is the entity that the exchange company sets up to park the property. It's a single-member limited liability company that’s wholly owned by First American or the exchange company. The EAT takes title to the property.

So step one is the investor transfers the property to the EAT. And immediately thereafter, the same day or the next day, is when they acquire their replacement property. And for all practical purposes, their 1031 is completed, hence exchange first: disposition of relinquished property, acquisition of replacement property, exchange complete.

Step three is going to come within the next 179 days. Step three is where a true buyer comes in and acquires the relinquished property from the EAT. They pay the value of what it's actually worth and they complete the acquisition that way.

Ashley Stefan: There are challenges, as you mentioned, to these exchange first models.

But there are some reasons that sometimes a person would actually prefer, or maybe it's the only option to do a reverse exchange, is to do an exchange first. And so, I wanted to get into some of these issues that kind of jam these transactions up the most because that's where your experience is especially useful. And you've probably seen the hairiest situations. But first, lenders. That comes to mind. And I know you've seen issues with insurance, environmental issues. Can you speak to how these issues affect a parking transaction or a reverse exchange?

Anthony Alosi: Yeah, definitely. And you know again, those are kind of the three hot points right now, Ashley. Those are the three issues that we usually deal with. And that's why, again, someone would just default then into an exchange first transaction. We have to park the relinquished property because the replacement property has one of three issues.

Issue number one. There’s environmental concerns with the property. Let's call it non-residential, right? So we're parking something other than a single-family, fourplex, something that wouldn't be classified as a residential property. It's commercial, it's industrial, it's an office building.

Ashley Stefan: Without of course giving legal advice, it is surprising to our customers at times that there are environmental things to think about when it comes to taking ownership of properties. And so it's important, not just for us, but really for anyone to be acquainted with this concept, because I think a lot of people could spend more time discussing environmental risks down the road with their attorneys. And so it's just one more thing for our listeners to think about when they're exploring investment properties: how could environmental issues possibly affect you down the road?

Anthony Alosi: Yeah, and it’s such a great point Ashley. Because there are so many people that I talk to that had no inkling, had no thought about even getting a Phase 1 on their property.

And the second challenge that we have when parking a replacement property is the lending component. We don't want to be subject to recourse debt. If we take title to a property that has a loan on it, we don't want to be responsible for our customer's loan. We don't want to be responsible for any of the terms of that loan. We want to make sure that if there's any recourse to that loan, the recourse is designated to our client.

So if we're talking about acquiring a property that has debt, the one requirement that we have is that the loan is a non-recourse loan. And in the, let’s call it again the non-residential world, commercial lending, generally that's not a problem. Most commercial lenders do non-recourse financing. They’re okay with that and that usually doesn't present a problem.

Where it becomes more of an issue is if we're trying to park a residential property. Someone's buying a rental, someone's buying a duplex, and they're going to their home loan department at their local bank and they want to fund the loan. Great. The lender's like great, we're going to underwrite the client, this is Joe and Mary Smith again. But they want a full recourse loan, which means if Joe and Mary default, then they can go after them as the borrower. Well, remember now in this exchange last scenario, we are the borrower because we're the owner and the buyer of the property. So if Joe and Mary default and stop making the mortgage payment, we don't want the lender coming after us because the loan is a recourse loan. We're going to require that they have a non-recourse loan attached to that property.

So again, we've got a residential property and we've got lending issues. There are lenders out there that can help clients finance replacement property using non-recourse strategies. Obviously it's more of a specialty type of loan. Can it be done? Sure, absolutely.

The third issue we touched on a minute ago too is insurance. And that's more geographic. We just need to make sure that the client can provide proper insurance for the EAT. The EAT is the LLC that is the owning entity that holds title to the property. And again, we've got residential, non-residential transactions. If it's residential, insurance can be exponentially harder because residential insurance policies don't always cover entities. They like to insure Joe and Mary Smith, my favorite exchange client here. It's easier for them to insure an individual or a married couple as opposed to an LLC.

On commercial transactions, non-residential insurance becomes less of an issue, but we try to prep our client from the get-go. When we talk to them initially about setting up the reverse, these are the three things that we need to make sure that we vet quickly: environmental, lending, insurance.

Ashley Stefan: Just before we wrap up, I want to take a moment to call out some red flags aside from the typical challenges that we've just discussed. Sometimes I think this is where people need to pause if any of these things come up. So when you hear the facts of a scenario where someone wants to do a reverse exchange, what are the things that make you say, okay, we need to slow down and start looking at this more carefully? What are red flags that you see a lot?

Anthony Alosi: Yeah, I mean I think the first thing is timing. Number one, Ashley, is I want to make sure people understand a reverse exchange doesn't really give you any extra time, right? I mean, you have to still complete your transaction within a certain time period. And that time period is exactly the same as a delayed exchange. So I want to make sure people understand that there is a timing requirement associated to a reverse. It's not open to do whatever.

Number two, and I think sometimes it gets lost with people, is that they still have to satisfy an exchange, meaning, in order to be fully tax deferred, they've got to buy property equal or greater in value to what they're selling. So again, they come across this magical property and it's worth, I'm making up a number, $500,000. And they are selling something, but the property they're selling is $850,000. I have to remind them they still have to buy additional replacement property to satisfy their 1031 exchange. They still have to buy up or equal to what they're selling.

Ashley Stefan: It's been so great talking to you, Anthony. And before we go, I do want to end with something practical for our listeners. What I want them to hear is that the reverse exchange has to be planned before the acquisition closes. And there are so many parties involved, and like you were just saying, possible contingencies and issues to sort out and ducks to get in a row, that trying to leave a transaction of this complexity to the last minute, while sometimes possible, in other cases could harm your ability to actually properly structure your exchange.

So with all that said, if somebody is listening and thinking, this is overwhelming, where do I even start? What should they pull together before calling the reverse team if they are thinking about doing a reverse exchange? What should they be thinking about first and foremost?

Anthony Alosi: Let's get down to the basics, Ashley. We didn't even talk about the exchanger, you know, who that is. Remember that for 1031, we've got a same taxpayer requirement that a lot of times people tend to forget. They want to acquire property in their family trust. And the property that they're selling, they forgot: they put it into a partnership that's owned by other people and not jus them.

So we want to break down and get really down to the core of: A) who's doing the exchange? B) what property is being acquired? Does it meet the requirement for 1031? It's held for investment, used in a trade or business.

I think people tend to forget that there is an equal or greater value requirement. So we try to walk them through that.

We would always address environmental concerns. We would always address the lending concerns. And of course, like I said, especially now these days more than ever, we would always address the insurance concerns with people.

Ashley Stefan: So it sounds like one huge takeaway from this episode could be: assemble a good team. Assemble a good team of qualified intermediary, attorney, tax advisor, whoever your trusted advisors are, because it's important to know what you might not know, essentially.

Anthony Alosi: Gather your team. Does your CPA need to be involved with every step? No. Does your attorney need to review every single document? No. But make sure that they understand what you're doing.

Let's get your CPA, let's get your attorney involved, helping them make those decisions on how to structure this properly.

Ashley Stefan: Before we wrap up, I just wanted to touch on one advanced topic really quickly as kind of a teaser. We can keep this very high level because our next episode is actually going to do a deeper dive. But reverse exchanges can overlap with improvements or build-to-suit exchanges where a taxpayer is actually adding value to the property that they want to use as their exchange property.

So, again, at a high level, where does a reverse exchange overlap with an improvement exchange? What's a customer usually looking for when that happens and can you just give us a little bit of information about how that might come into play?

Anthony Alosi: Sure. Yeah. And again, another great strategy, Ashley, that people like to utilize. Improvements and construction and TIs, it can encompass so many things when we talk about including construction to a reverse exchange. And here's kind of in simple language: you cannot buy a property and improve it, right? You can't sell your $500,000 property in an exchange, buy a property that's $400,000 and then within 180 days do $100,000 worth of work and have that satisfy the exchange requirement. That just doesn't work. In order to make improvements, you can't own the property.

So what happens is, because we're parking this property, we've now taken title to it, improvements can be done while we hold the property. Depending on the scope of what someone's trying to do, maybe they're going to build a property from ground up or buying a piece of dirt and they're going to start their construction on day one and try to get as much done within the 180-day parking period. Great. Maybe they're buying a property that needs some rehab, needs a new roof. They're remodeling something. They're doing TIs to the offices. It depends on the size and scope of the work.

But this reverse exchange or parking exchange strategy is a perfect segue into doing that. Because as long as we're holding title to property, improvements can be made. And to your point, it adds the value.

Ashley Stefan: I'm sure this is raising even more questions for everybody to dive into, but I will save those for the next episode. But the practical point is the same though with the reverse exchanges, I think: the more complex the facts, the earlier your planning conversation needs to happen.

Well, thank you again so much for being here today. It was awesome talking to you about reverses.

Anthony Alosi: My pleasure, Ashley. Look forward to our next chat.

Ashley Stefan: A reverse exchange might help an investor strategically in certain scenarios, but it totally depends on the facts and it requires coordination between many parties. The parking structure, lending requirements, title and purchase agreement issues, environmental review, insurance documents and deadlines all matter deeply. So for listeners who would like to dive deeper into how these reverse exchanges work and what you should be thinking about, we'll include a reverse exchange investor's primer with the documents and questions to gather before the first planning call.

See you next time on The 1031 Brief, where we bring you information useful enough to remember and practical enough to use.

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This podcast is for educational purposes only and isn't legal, tax, financial, or investment advice. Please consult your own tax advisor and legal counsel about your situation.

This episode is copyright 2026 by First American Financial Corporation, all rights reserved.

This transcript has been edited for clarity.

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