1031 xChange - what are your stories

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

2y

@Daria B., during the 45 day period anything goes. Your list can be changed at will. It is only after day 45 that you are stuck with what is on your list and have to choose from only what is on the list.

It's because of all the things you mention that I always recommend that you treat the 45 day period not as an identification period but as an "I gotta get my property under contract period." The further along in the process you can be the less time risk you have.

The pressure of the 45 day list usually ends up being kind of a red herring. Folks stress about it. But who really identifies a property and then takes 45 days to get it under contract. It's more common to spend a few days negotiating an original contract. So the probability you can actually find and get a contract during the 45 day period is pretty high. Unless you're looking for an incredibly unique property.

If the market is incredibly hot then negotiate your purchase first and then execute your sale. In a seller's market you as the seller of your old property have all the power.

And always remember that there is no penalty for starting and not completing a 1031 exchange. So no reason to give up before you give it a shot. You never have to pick an inferior property. And most often (like 90% of the time) you'll find a good replacement.

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Daria B.

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Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes

2y

Quote from @Dave Foster:

@Daria B., during the 45 day period anything goes. Your list can be changed at will. It is only after day 45 that you are stuck with what is on your list and have to choose from only what is on the list.

It's because of all the things you mention that I always recommend that you treat the 45 day period not as an identification period but as an "I gotta get my property under contract period." The further along in the process you can be the less time risk you have.

The pressure of the 45 day list usually ends up being kind of a red herring. Folks stress about it. But who really identifies a property and then takes 45 days to get it under contract. It's more common to spend a few days negotiating an original contract. So the probability you can actually find and get a contract during the 45 day period is pretty high. Unless you're looking for an incredibly unique property.

If the market is incredibly hot then negotiate your purchase first and then execute your sale. In a seller's market you as the seller of your old property have all the power.

And always remember that there is no penalty for starting and not completing a 1031 exchange. So no reason to give up before you give it a shot. You never have to pick an inferior property. And most often (like 90% of the time) you'll find a good replacement.

Admittedly, I feel a little less apprehensive after reading this. If the exchange didn’t work out all I would be out is the cost of paying the exchange company considering they would be holding the money from the sale transaction.

Why I was also hesitant is the “only” having 3 properties - but - .....

….are you saying that if I identify 3 from the start of the 45 days and on day 5 I lost one due to it being out bid by me or what ever reason it was no longer viable, that I can find and put another property in the mix of my original 2 properties?

Daria

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

2y

@Daria B., that is correct. The only list that matters is the one that is in place on midnight on day 45.

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Daria B.

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Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes

2y

Quote from @Dave Foster:

@Daria B., that is correct. The only list that matters is the one that is in place on midnight on day 45.

I'm not getting all the right information then from other sources. Thanks for clearing that up. I still think the requirements should not be limited to just 3 properties but that's me. As you said, I can start looking before closing to identify and be ready to do an offer and if it doesn't work I would still be looking for properties that meet my criteria to include in if one falls out.

Also, I tried to get to your web site using the signature link but it's not working. I see 2 (http://) in your signature but when I try the website itself it does not display. I worked with the url a bit and finally got to your web site.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

2y

I did my first 1032 with Dave in September.

1) you don’t even have to submit a list of 3 properties until day 45 after you close.

2) I was able to close before day 45 on my new property so it never even came up.

A week or two before your property closes you get a property or two under contract. That way your inspection contingency overlaps your closing date. You close on your sale and then you can buy anything you have under contract without ever worrying about the 45 day list.

There’s was literally zero stress about being able to close before 180 days (I just got that automated email yesterday saying I had a few days left.)

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Daria B.

OP

Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes

2y

Quote from @Bill B.:

I did my first 1032 with Dave in September.

1) you don’t even have to submit a list of 3 properties until day 45 after you close.

2) I was able to close before day 45 on my new property so it never even came up.

A week or two before your property closes you get a property or two under contract. That way your inspection contingency overlaps your closing date. You close on your sale and then you can buy anything you have under contract without ever worrying about the 45 day list.

There’s was literally zero stress about being able to close before 180 days (I just got that automated email yesterday saying I had a few days left.)

A property or two….I’ve never had more than one property under contract. How does that work as obligation to buy considering I would be entering into a contract? With the amount I am dealing with it’s only one property I would be buying.

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

2y

You only NEED one property under contract.

If you’re making “aggressive” offers you can put out a couple offers at a time. The seller is going to counter. That gives you a few days while you wait for your property to close. (If it’s a deal you would accept. Otherwise you make another counter to delay the last couple days you need.)

My experience is sellers sit on your offer for a couple days while their realtor calls everyone else that has ever looked at it, trying to drum up another offer. if you should get so lucky that they are desperate enough to take your offer without a counter. Then you have 7-10 days for your inspection. (Which usually doesn't start until you deliver your EMD, all you're really risking.) During which time your property should have closed. Since you made this offer about 7-10 days before your closing date.

I am not in ANY WAY, saying you should make offers you don’t want accepted or on properties you don’t intend to buy, or with the intent of of haggling the price or weaseling out. I AM saying you should have 7-10 days of being “under contract” without being at risk. And I’m assuming you vetted your buyer who’s now 30-45 days in to your deal and about to close. If your buyer is shaky/shady this won’t work as well.

My realtor was in touch with buyers realtor and lender every couple days making sure everything was on track there were zero hiccups.

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Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

2y

Quote from @Daria B.:

Hi all,

I've read a lot so far about this topic and the more I read and see the restrictions I don't know if it's something I want to venture into. It was a nice thought at first reading of avoiding capital gaines but then I read about the 45 days (max 3 properties) no quarter if issues.

Rhetorical, but why does the IRS not see that no one controls the market and identifying 3 properties with no guarantee of closing and if something goes wrong, that it's no more exchange. And of course money has now been paid to the 1031 xchange company for starting the process so that's now gone as well.

Anyway, after finding this out I wanted to hear from others that began a 1031 but it didn't work out and why.

Maybe some enlightenment on how to make this work when there is no controlling the market. Meaning, I find 3 properties but then someone else comes along and buys them up or for some reason the seller decided not to sell. Anything can happen that would exclude what I found to no longer be viable, which is why I don't understand that at least within the 45 days other properties could not be included. Anyway, it's the IRS.

Cheers!

Daria

The rule is simply created by IRS to make people to still pay tax when selling, so even if you can exchange it, you definetely would have much harder time to think and to access and to get financing.

Honestly if profit is less than 200k I would just pay the taxes.

There're more strategy that you can think of to avoid possible losses such as (a) selling primary and then move to rental or (b) add the cash portion so it's almost 100% cash to get the house is accepted OR (c) having bridge loan ready, expensive but sometimes necessary.

There're are even whole specialized financing product for situation like 1031, at the end of the day, watch you cost.

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1031 xChange - what are your stories - help me understand

1031 xChange - what are your stories - help me understand

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