Up to a year to identify a property for a 1031? Is it possible?
Property type: fire station with on-site living quarters
Scenario: The property is currently rented to an EMT company to park their ambulances and house the EMTs while they’re on-call.
A new owner just came into the picture and has offered to buy the building for $195k (we believe this is about $40k over market value). We’d like to sell but we only have $88k in the building and we don’t want to pay capital gains on the difference; so we’re looking into a 1031 exchange.
The problem is that our target market is very low on inventory right now (I’m attributing a lot of this to COVID uncertainty) and therefore prices are inflated.
We want more than the standard 45 days to identify a good property to move our equity into via the 1031 exchange.
My question is this:
Is it possible to structure a deal where we all agree on a price and sign purchase agreement but don’t actually close on the deal for an extended length of time? Like maybe up to a year?
The buyer already has possession of the building as a tenant currently. He’s a cash buyer. He’s very motivated and willing to work with us so I think it’s a good opportunity to try a creative strategy.
This is how I envision it playing out:
Once we signed the purchase agreement, we’d collect a hefty deposit from him, his company would stop paying us rent, and he’d be responsible for all maintenance, insurance, taxes and other property expenses.
We’d take up to a year to find a good 1031 property and then we would go ahead and close on the fire station sale and the buyer would transfer the remainder of the sale price to us.
Has anyone done anything like this?
Am I overlooking possible complications?
Is it a crazy idea?