The 1031 Brief Podcast Ep. 2: How Does the Market Affect 1031 Planning?

When real estate markets are uneven, how do investors approach a 1031 exchange? In this episode, Ashley explores how to handle complex financing considerations or the need to make replacement-property decisions quickly. She explains why investors should think about exchange timelines, financing, backup options, and replacement-property strategy before the clock starts running.

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TRANSCRIPT

Ashley Stefan: Markets change and strategy has to change with them. A few years ago, many real estate investors were operating in a more forgiving environment. Capital was cheaper. Buyer demand was broader. Timelines felt more manageable. If one replacement property fell through, another option might easily appear. But that's not the market many investors are navigating in 2026. Rates are still a major underwriting factor and recovery across property types is uneven.

High quality inventory can be very competitive. When added constraints cause timing to become less predictable, the cost of waiting to plan or waiting to strategize goes up. Today, on the 1031 Brief, we're going to discuss why today's market makes early 1031 planning more important than ever.

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

On this podcast, we break down real estate, tax, and 1031 exchange concepts in plain English so investors and advisors can make more confident decisions. One thing to keep in mind from the jump — this podcast is chock-full of helpful insights, but it's for educational purposes. It's not legal, tax, financial or investment advice. It's always essential for an investor to consult their own tax advisor and legal counsel about their particular investment situation.

In the last episode, we covered the basics: what a 1031 exchange is, what like-kind means in real estate and a 1031 context and why the structure has to be in place before closing on your sale. Today, we're adding the market layer because a 1031 exchange doesn't happen in a spreadsheet. It happens in the real market with real buyers, real sellers, lenders, deadlines, title issues, due diligence considerations and replacement property decisions that have to be made in a specific timeframe.

The broad 2026 story isn't that opportunity disappeared. It's that investors have to be more selective. Market forecasts entering 2026 generally pointed to more transaction activity and improving commercial real estate fundamentals, but also to a recovery that varies significantly by sector, geography, asset quality and financing conditions.

So that means two investors can hear the same headline and have very different real world experiences depending on where they live, their existing portfolio, whether they have debt. The list goes on. One investor may be looking at a high-quality industrial property with multiple interested buyers. Meanwhile, another investor is trying to reposition an older office asset in a market that's still finding its footing.

Investor three might be evaluating multifamily in a region where new supply has changed the rent assumptions. And investor four might be looking for a more passive real estate strategy because active management doesn't fit their lifestyle any longer. It's the same year, but different facts depending on the situation. And that means different 1031 exchange strategies for any of these investors who are thinking about exchanging. And that's the point to underline in this episode.

The market context really matters because replacement property isn't just a box that you check, it's your next investment. And finding a good one means your 1031 exchange could be successful or not.

In a calmer market, investors might be able to get away with kicking the can down the road and solving problems later. They list their relinquished property, they wait to see what happens, they think about replacement options once the buyer is real for their sold property, and then after closing, they try to make the exchange deadlines work. Sometimes that can work, but when capital costs are meaningful, inventory is uneven and underwriting assumptions are changing, waiting can actually shrink the investor's reinvestment options pretty quickly. So, while there are several deadlines to contend with in a 1031 exchange, early planning isn't just about compliance with those deadlines, but rather how to leverage a tool in the face of a shifting market. It gives the investor more time to understand their gain and tax implications, estimate the equity that's available for reinvestment into a replacement asset, diligently evaluate all possible financing options, scan replacement property listings, identify backup paths and decide whether a standard forward exchange is sufficient to meet their intended goals of the transaction. When the market gives you less wiggle room, you have to use planning to create more room instead.

And here's where some added pressure shows up. A deferred exchange, or sometimes referred to as a delayed exchange or a forward exchange, generally has a 45-day identification period, and there's a 180-day exchange period. In some situations, the tax return due date can actually shorten the outside exchange deadline, so investors should always review very precisely what their deadlines are with their qualified intermediary and their tax advisor.

Those deadlines are firm. They don't pause because a lender asks for one more document or because a seller changes their terms. They don't get an extension because an inspection reveals a problem or because the best property went under contract yesterday with another buyer, and now the investor needs more time to identify additional properties. Real estate deals have their own clock, and exchanges have another clock. So good planning is about making sure that those timeframes can work together.

That's why replacement property research shouldn't begin the day after closing once the exchange already starts. It should begin when the sale becomes a realistic possibility, months before the actual exchange. There's strategy involved in thinking through replacement property options as well. If the first-choice replacement property fails, what's your backup? If financing takes longer than expected, then what happens? Is there an alternate financing option? If the sale closes faster than expected, is the exchange structure and the timing ready to go? And if the replacement opportunity appears before the relinquished property sells, is a reverse exchange or another advanced strategy worth evaluating? These questions go beyond paperwork and can affect the trajectory of an entire transaction and your tax deferral.

In today's market, we're seeing more investors think about 1031 exchanges as a portfolio management tool and not just a tax deferral tool. Sometimes that looks like just a simple forward exchange. Sell the relinquished property, then acquire qualifying replacement property within the exchange timeline. You're done. Occasionally, it means a concurrent or tightly coordinated exchange, where the sale and the purchase are actually lined up closely to reduce uncertainty. And other times, it's worth exploring a reverse exchange, where the investor might need to actually acquire the replacement property before their relinquished property can be sold. That can be really useful when the right replacement opportunity is available right now, but your sale timing isn't aligned.

The point is, not every investor needs a complex structure, but investors who start planning early will have more options and a better chance at successfully exchanging. It's also important to remember that not every type of real estate is moving the same way in today's market. Industrial properties like warehouses and logistics facilities are still attractive in many markets. Companies often want better space, better locations, or newer buildings. That can create opportunity, but it can also mean more competition for high-quality replacement properties.

Multifamily, or apartment properties, remains a major investment category, but the details matter. Investors need to look at local supply, operating costs, rent growth, insurance costs and availability, property taxes and financing assumptions in that area. In some markets, new apartment buildings are still being filled, but in others, supply is still much tighter. So again, you run into geographic-specific concerns.

Office is especially dependent on the local market and the specific building. A newer, well-located office building might look very different from an older building in a weaker location. Some office properties are under real pressure. Others may offer selective opportunities. But either way, the numbers have to be reviewed carefully since it's a bit different across the board. Retail, data centers, health care properties and other real estate categories each come with their own questions, risks and market drivers.

So why does this matter for a 1031 exchange? Because replacement property is just not a one-size-fits-all strategy. A strategy that works for an apartment building may not work for an office property. A timeline that feels manageable in one city may be too tight in another. And a loan assumption that made sense two years ago may not work in today's rate environment. That's why exchange planning and investment planning should be part of the same conversation.

So, what does good planning actually look like? It starts with five questions.

First, what's the likely gain and what tax exposure should the investor review with their tax advisor?

Second, does the investor actually want to stay invested in qualifying real estate or is liquidity more important to their goals?

Third, what replacement property is realistic and how narrow is that target?

Fourth, what could break the timeline? Financing, diligence, title issues, maybe partner approvals, lender consent, construction timing or buyer uncertainty?

Fifth, who needs to be involved before closing? The answer to this is the qualified intermediary, tax advisor, any legal counsel, brokers, lenders, escrow or settlement teams and anyone else whose timing could affect the exchange. They should all be involved early on.

Good planning isn't predicting the market perfectly. It's preparing before the market makes a decision for you. This is why The 1031 Brief exists. Real estate investors don't need more noise. They need clear explanations, practical examples and enough context to ask better questions before the deadline is already running. Brief doesn't mean shallow. It means useful enough to remember and practical enough to use.

Each month, we'll cover one exchange topic, market issue, planning tool, or common mistake. Sometimes it will be a short, host-only primer, like this one. Sometimes we'll bring in guests. And sometimes we'll get into complex topics like reverse exchanges, improvement exchanges, DSTs and other investment vehicles, fraud risks to avoid, economic signals to look out for, or the planning choices that investors wish that they'd considered earlier.

The key takeaway today is simple. In a tighter, more selective and less predictable market, early planning becomes way more valuable. Not because the basic 1031 rules have changed in any way, but because the margin for error has gotten smaller. If you found this helpful, subscribe to The 1031 Brief. We'll link a 2026 Exchange Planning Checklist in the show notes.

In the next episode, we'll look at a question many investors don't ask early enough: are you leaving money on the table? Thanks for listening.

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

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.

Check out more episodes of The 1031 Brief.