This post originally appeared on Burt M. Polson's Real Estate Journal and is republished with permission. Find out how to syndicate your content with theBrokerList.

Photo by   Harrison Haines   from   Pexels

Photo by Harrison Haines from Pexels

I love talking with my clients and helping them look at their current challenges more as an opportunity. Below are a couple of problems my clients are currently considering.

Getting the boot from a 1031 exchange

It was a record year for the 1031 tax-deferred exchange in 2019, and this year looks to be on track for the same. However, the election-year offers uncertainty for investment taxation related to the 1031 exchange. Republicans are looking for technical corrections in the law, while Democrats would pursue more substantive changes.

A client considering exchanging his strip center into three single-family rental houses was surprised when I told him not to forget about debt reduction boot. He is considering selling his strip center for $2 million and, as a part of the sale, would pay off his $1 million loan giving him $1 million to use in the purchase of three houses to rent.

He is considering houses with a $600 thousand price point, which would give him a total purchase of $1.8 million for three houses. He would put the $1 million down and finance $800 thousand.

I explained that even though he could exchange into the three houses using all his proceeds from the sale, he does not have the same level of debt and therefore, will have tax consequences. He will end up paying taxes on the $200 thousand difference as “mortgage boot.” 

Selling a gas station without the bloat

It may be the new year or perhaps the economy and the favorable bottom line many small businesses are experiencing, interest in selling businesses is on the rise. 

A new client contacted me to sell his gas station. He has a price in mind, but I am concerned his value is bloated. Though many similarities exist in valuing and selling businesses, a gas station is set apart in several ways.

Like other businesses, an owner first needs to gather financial records for the past three years, which includes audited financial statements and tax returns. Additionally, fuel agreements, franchise agreements, and certificates of compliance or environmental studies are all essential documents as part of a sale of a gas station.

Second, gas stations have environmental laws to comply with related to the storage tanks. In California, compliance with SB 989 (Senate Bill), EVR (Enhanced Vapor Recovery), is a priority. There is also point-of-sale PCI (Payment Card Industry) compliance to consider.

Third, conducting thorough market research to determine other gas stations in the area and their volume, traffic patterns, traffic counts, demographics, visitor/tourist statistics are all part of determining value.

Lastly, valuation also depends on whether the gas station is branded or unbranded, if there is a convenience store, maintenance bays, condition of the facility, modernization, number of pumps, and size of the land.

Burt M. Polson is the CEO of ACRESinfo.com, a commercial real estate brokerage company and CEO of StoneMarkerInvestments.com, a private equity real estate fund. Call him at (707) 254-8000 or email [email protected] and [email protected]

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