Inventory issues when purchasing a 1031 upleg
if a client is selling his apartment building and is looking for an upleg, how can he play it safe
In this current situation of low apartment building inventory in Los Angeles,
For examples what tactics can be used to make sure that his property is sold while securing another
That is of his liking
Examples, an option to delay escrow closing for 30 days, etc
What options are availble?
If sufficient funds are available you could do a reverse exchange and purchase the up-leg first and then sell the down-leg.
You could put contingencies in the sales contract that give you/client the right to extend closing. This may or may not be well received by a potential buyer and are subject to market movements such as buyer loosing out on financing or re-trading if interest rates move.
You could identify DST or TIC options as back-ups with lower transaction risk
Depending on the numbers, you could use the 200% rule to potentially identify greater than 3 properties and give more optionality.
that sounds good, thanks
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#1 1031 Exchanges Contributor
- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
@Daniel Johnson, good suggestions from @Drew Reynolds. Here's a couple more:
1. go into contract for your purchases prior to your sale and attempt to bunch the closings as closely together as possible.
2. Negotiate as delayed a closing on your purchase as possible.
3. A long shot in this seller's market would be to get a contingency on your purchase from the seller to satisfy your 1031.
4. A much more likely scenario is to demand a contingency from your buyer so they will delay closing until you find a suitable property.
5. Make friends with investors (not related parties) who have property that is not actively for sale but could be if you needed one - pocket listings. Most good realtors have a few.
6. Tie up a replacement property with an option.
Dave,
can you elaborate on a few points
#2 - what wordage would I use in the purchase contract to achieve a delayed closing
#4 - same thing what is the wording on the counter offer for a contingency to delay closing until you find a suitable property.