Seller wants 1031 exchange but no property yet; can I still buy?

5 Replies

Hi everyone - I've found an off-market deal that fits what I'm looking for but the seller doesn't have a property to do a 1031 exchange on yet so he's not quite ready. Is there anything creative we can do here? Some kind of seller financing or option or something?

I'm super new to this so I don't know all the different avenues yet - how can we get this deal done?

An option would work.  The seller needs to identify his replacement within 45 days of your closing, preferably before your closing and have it under contract.

He can do a reverse exchange. @Dave Foster can provide some more info!

Updated about 3 years ago

I see it is Seller's exchange, not yours. I apologize! Dave's response is right on. Thanks, Dave!

@Jessica G. , You're in a great position because you have something incredibly valuable to offer him - time and flexibility.

He needs time to find his replacement property.   The best way to do this is for you to get it under contract (or an option as @Wayne Brooks said.  But an actual contract contingent on his finding a suitable replacement or with a floating closing date would be best for his putting an offer on a new property.  If you can be patient then you might be able to even negotiate a bit lower price.

If he finds the perfect replacement property and you're not ready to close then a reverse exchange like @Jessica Zolotorofe would be another option to save the deal.

The seller could also do a Monetized Installment Sale. This is a way to structure the sale so that the seller can get cash at closing and defer the capital gains tax and depreciation recapture for 30 years. This way he/she wouldn't have to worry about having a replacement property ready and you could get the property. And your seller would be able to go into their next deal with an all new basis and fresh depreciation. With a 1031 your gains and depreciation are rolled forward into your next property.