House Swapping?! Hmmm..

By Erion Shehaj | February 23, 2008

According to a feature story on Yahoo’s home page yesterday, many folks around the country are turning to house swapping to move properties in hard markets. Originally a practice utilized primarily for vacation homes, house swapping works by matching relocation clients with similarly valued homes. Any difference in value is to be paid in cash to balance the deal. While this is definitely creative, I see many obstacles in this practice becoming anything close to mainstream. First, it severely limits the selection of homes available to buyers in that you can only choose from homes whose owners are willing to swap. Second, the differences between median home prices in different parts of the country will essentially rule out swapping as a viable option. Finally, this is being additionally marketed as a method to defer capital gains taxes under the 1031 exchange rule. I think the IRS will take issue with that considering that tax deferral under 1031 rules applies only to investment properties.

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2 Responses to “House Swapping?! Hmmm..”

Ruben Colon Says:
February 23rd, 2008 at 5:15 pm
Hi!Erion,
I enjoyed your post about house swapping. I agree with you that this concept is far from becoming mainstream, but I think the idea is just another tool that has been around for many years. Swapping is another option that hard pressed home owners that need to sell can utilize. It can also be looked at as a creative financing tool.

The differences in home prices between homes in other parts of the country have little to do with balancing equity. The difference is that someone who is moving from a more expensive market will probably get less of a home for their equity and vice versa. It really does not matter, because even if they sold their home in a traditional manner, they would still be working with the same amount of equity to purchase in the new area they are swapping.

As you stated the IRS 1031 rule only applies to properties being held for investment, the rule does not apply to home owners that will occupy those homes as a principal residence.

If you have any clients in your market that want to swap for a home in my Chicago area market, I will be happy to work with them. I will pay you a referral fee.
Michael Price Says:
February 25th, 2008 at 4:22 pm
I wrote about an early entrant into this space last june. Domuswap.

http://www.mlpodcast.com/blog/labels/domuswap.html