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About PeterWunsch

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  1. Believe me, I would like to be writing good news about the 1031 business, especially this time of year. But I thought this posting from the Summit 1031 website would be of interest: “To All Customers of Summit 1031 Exchange: Summit Accommodators, Inc. (”SAI”), which maintains the exchange fund accounts for customers of Summit 1031 Exchange (”Summit Customers”), is experiencing significant financial issues. As a result, at this time, Summit is not accepting new exchanges, has curtailed its daily operations, and ceased funding existing exchanges until SAI can address and resolve its financial issues. Currently, there are significant funds in the exchange fund accounts maintained by SAI. However, the balances are less than the total amount of all currently open exchanges for Summit Customers. SAI is attempting to address this liquidity problem through the liquidation of other assets and potentially available resources. SAI is committed to making every effort to address and correct these issues. Summit sincerely regrets the concern SAI’s financial issues presents for Summit Customers. SAI management is devoting all of its attention to finding a prompt resolution of these issues and avoiding detriment to Summit Customers. Further status updates will be provided on Summit’s website at www.summit1031exchange.com as soon as possible.” I don’t know the details behind Summit’s financial problems, but I believe Summit also offered Tenant-in-Common packages as part of its services and I would bet that it was problems with those buildings that led to the financial reorganization Summit now plans. Peter Wunsch
  2. Another cautionary tale in the world of 1031s can be found in the story of DBSI, a privately held real estate firm based in Boise, Idaho. In 2002, the firm had assets of just “several million dollars,” but by 2008, assets had exploded to $2.6 BILLION. Now it has filed for bankruptcy protection and thousands of small real estate investors are left wondering if they’ll ever recover their investments. Why is this a cautionary tale for the 1031 market? Because DBSI, like many other companies that own/arrange T-I-C deals, also provide 1031 exchange services. They use the 1031 market to attract people to their TIC deals. The value proposition is undeniable: need to find a replacement property in 180 days? No worries. Become a tenant in common in an existing building and voila. You meet all the IRS requirements for a successful exchange. Except how many investors really do due diligence on the TIC property? Apparently DBSI bought buildings in anticipation of turning them into TIC structures. It loaded those buildings with debt and sold fractional TIC shares for well more than it paid for the building. No problem when property values kept rising...but we all know how this story turns out. The market turns, DBSI can’t meet the debt payments, and needs cash to stay afloat. Eventually it collapses and what happens to the money being held for 1031 exchanges? Tied up in bankruptcy proceedings, a real estate investor’s worst nightmare.
  3. Many 1031 Exchange firms are affiliated with real estate brokerages that package and sell so-called Tenant-in-Common properties. These arrangements help sellers looking to defer capital gains by providing a ready-made property in which to invest proceeds from a recent sale. You own a fractional share of a larger property and defer capital gains on the sale of your current property. In fact, many 1031 companies, or exchange accommodators as they are sometimes called, are primarily brokerages that provide 1031 exchange services as a way to generate clients for their tenant-in-common properties, on which they make very nice commissions. There’s nothing inherently wrong in this arrangement, but to me it means the actual details and logistics of the 1031 exchange are not the companies’ primary focus, and this can lead to trouble. The IRS has established very strict exchange guidelines that must be followed or the exchange is invalid, subjecting the taxpayer to big tax liabilities. Missing even one seemingly small or inconsequential step can invalidate the whole exchange.
  4. I hope as many of you read the following and talk about it as possible. 1031 exchange fraud is costing investors millions! We need to stop this now! Amid all the financial turmoil of the recent months, you may have missed a front page story in the Wall Street Journal about the scandal surrounding Vesta Strategies, one of several Section 1031 Qualified Intermediaries that has recently gone bust. In Vesta’s case, it has managed to tie up more than $100 million of their client’s money. A qualified intermediary (in case you don’t know) is a company that is licensed to perform 1031 exchanges. As a third-party that holds onto your money during the 180 days of the 1031 exchange process, they have COMPLETE DISCRETION how to use this money, subject only to the agreement you sign with them. For Vesta, it seems this meant unsound investments. 1031 abuse is a disturbing trend that all real estate investors should be aware of. Staying alert to deception in the market is our best chance to avoid becoming a victim. The next time you consider working with a Qualified Intermediary, please take the effort to find out where your money is really going. And before you give put your money at risk, make sure you are working with a company that deserves your trust. The post above was edited by Moderator to delete a solicitation for services and contact information. ______________________________________________________ Moderator comment: The Wall Street Journal reported that the two principles of the company have sued each other alleging misappropriating and embezzling their client's funds for personal expenditures. The article did not mention that Vesta made any unsound or unsafe investments. The article further mentions that Vesta held between $10 million and $30 million in client money at any one time. Mr Wunsch's claim that Vesta has tied up more than $100 million of client money can not be confirmed from sources available to the Moderator. If you are a paid subscriber to the WSJ Online, you can view the complete article here Behind the Boom and Bust Of Real-Estate Player Vesta William Exeter is a contributor to this forum and has offered the following comment on the Wall Street Journal Article. Real estate investors need to carefully evaluate their prospective Qualified Intermediaries. The three losses that our industry has experienced over the last couple of years resulted from individuals that had recently “jumped” into the 1031 exchange arena. Real estate investors need and should look at the longevity of ownership, management, and employees as well as bonding and insurance and experience
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