Reverse 1031 Exchanges And How to Avoid Being Held Under the Gun

By Zane Willman, Associate Advisor | CCG Real Estate Advisors

The biggest risk in a 1031 exchange isn't the capital gains, it's the timing pressure. 

Most investors understand the benefits of a 1031 exchange.

What they don’t always understand is the psychological weight that comes with it:

• 45 days to identify.
• 180 days to close.
• Millions of dollars in equity.
• And a ticking clock.

We regularly speak with investors who say:

“I don’t want to be forced into a bad deal just because I’m mid-exchange.”

Which is why the conversation should start with:

How do we structure the exchange so you’re not negotiating under pressure?

The Traditional Exchange: Sell First, Then Source the Upleg

A traditional 1031 exchange works like this:

1. Sell your downleg (relinquished property)

2. 45 days to identify replacement options

3. 180 days to close

4. Defer capital gains

The structure works, but it creates urgency.

If you don’t have your upleg identified before closing your sale, you’re put a position of pressure.

The Reverse 1031: Buy First, Sell Later

A reverse exchange flips the sequence:

1. Acquire the replacement property first

2. Park title temporarily through an Exchange Accommodation Titleholder

3. Sell your downleg within 180 days

4. Complete the exchange

It solves the “I found the perfect asset” problem.

But it introduces complexity:

• Requires liquidity or bridge financing
• Execution risk if downleg doesn’t sell in time

A Third Path: Structured Flexibility

In some situations, instead of defaulting to a reverse exchange, we explore:

• Sourcing your replacement asset off-market

• Working with sellers who are also planning a 1031

• Extended escrow periods

• Coordinated timelines between buyer and seller

When both sides of a transaction are exchange-conscious, there can be room to structure a deal that allows:

• The buyer time to prepare and market their downleg

• The seller time to identify and secure their upleg

• Both parties to move forward with greater certainty

The IRS rules still apply — but it can reduce the feeling of being under pressure before the clock even starts.

Case Study: Coordinated Execution

In a recent exchange case study, the sequence was intentional.

Before we started the sale process of the downleg, the replacement property was identified and negotiated off-market.

Once the sale process launched:

• 7 offers were generated

• The property closed $71K over list

• Contingencies were shortened

• Proceeds were maximized

On the upleg side:

• A stabilized 5-unit property in Vista was secured

• The asset aligned with the client’s income and management goals

• Equity was redeployed into a lower-maintenance, higher-performing investment

The exchange clock didn’t dictate asset quality. Asset quality dictated timing.

When a Reverse Exchange Is Still Appropriate

There are scenarios where a formal reverse exchange is the right move:

• A high-quality asset becomes available unexpectedly

• The seller requires a non-contingent close

• Inventory is constrained

• The investor has liquidity or bridge capacity

In those cases, the structure is technical but manageable with the right coordination between:

• Qualified intermediaries

• Lenders

• Escrow

• Tax advisors

The tradeoff is higher cost and greater execution risk if the downleg doesn’t sell as planned.

The Bigger Picture

A Reverse 1031 Exchange is a legitimate and useful tool.

But in many cases, thoughtful planning, including off-market sourcing and coordinated timelines, can reduce the need for rushed decisions.

In competitive markets like San Diego, the advantage often comes from preparation:

• Identifying replacement options early

• Understanding seller motivations

• Running a disciplined sale process

• Aligning both sides of the transaction when possible

The goal is to provide our clients with clarity and control over the sequence.

At CCG, we step in before the exchange clock starts. We work to source you off-market opportunities and coordinate optionality so you can evaluate replacement assets and structure timing before you're negotiating under pressure. The objective isn’t simply to complete a 1031, but to reposition equity deliberately and improve the long-term quality of your portfolio. 

Click our Logo below to schedule a complementary strategy call with our team. 

*** CCG Real Estate Advisors is not a tax or legal advisor. 1031 exchange strategies involve complex tax considerations, and investors should consult with their CPA and legal counsel before implementing any exchange structure. This article is for informational purposes only and does not constitute tax, legal, or investment advice. ***